Term Life and Whole Life Insurance: What Are The Important Differences?
Planning for the end of one’s life is not glamorous or easy but is necessary. Life insurance is an important means of ensuring that your final expenses are covered and those you love are financially protected.
In this article we look two types of life insurance: term and whole life.
Term Life Insurance
Term life insurance is less expensive than whole life insurance and often easier to navigate. However, like the name says, this type of insurance isn’t permanent. Term life covers you for a pre-determined number of years, typically 10, 20, or 30 depending on individual needs.
For most term life policies, the death benefit (payout) and the price (premium) stay the same throughout the term of the policy. The policy has no cash value to borrow against like whole life, but it can provide big peace of mind at a small price.
Now, you might be asking what types of situations can be covered by a term life insurance policy. While the answer largely depends on your individual needs, we’ll give you some examples that may make the decision easier.
What Term Life Covers
First, if you have children, term life insurance can be used to cover their college expenses should you pass away unexpectedly. Another important use for term life is income replacement. If you are the primary or sole provider, insurance can serve to cover bills like mortgage payments and everyday living expenses for those you love.
Another consideration when choosing term life is, well, what term to pick. As we said earlier, the typical terms are 10, 20, and 30 years. You’ll want to choose the term that best aligns with how many years you’ll still be paying the bills.
For instance, if you have young children you might want to pick a 30-year term. However, if you don’t have children or they are almost grown, then you might want to choose a shorter-term life policy. Either way, make sure to select the term that will leave your loved ones covered in a worst-case scenario.
If the cost of buying life insurance is a concern, keep in mind that term life has lower premiums overall. And, if your financial situation improves and you want more coverage with no end date, many term life policies can be converted to whole life (permanent) policies.
So, let’s look at the benefits and drawbacks of whole life insurance.