Term vs. Whole Life Insurance
Term life insurance and permanent life insurance are the two main types of life insurance policies. Whole life is a popular form of permanent life insurance, and it differs from term life insurance in a number of ways. Learn more about some of the key differences between term and whole life insurance policies.
What Is a Term Life Insurance Policy?
With a term life insurance policy, you can secure financial protection for a set period of time, or “term." If you die while your policy is in force, your named beneficiaries will receive the policy's death benefit. They can use this benefit as a replacement for your lost income, to make mortgage payments or for other financial needs.
Term life insurance offers policy holders some important flexibility. You choose the term period — it can be as short as one year or as long as 30.
It really boils down to what you need. Do you want to protect your children’s finances as they grow up and head off to college? Or are you looking for a short-term safety net as you care for an aging parent?
In general, term life insurance can be an attractive option if others depend on your income. Additionally, if you’re looking for only a specific period of coverage, term life insurance plans can often be less expensive than whole life insurance.
How Does a Whole Life Insurance Policy Work?
Like term life insurance, whole life insurance policies pay a death benefit if you die while your policy is in force. However, whole life insurance is different in several ways.
- Whole life insurance is permanent. It remains in force as long as you pay your premiums.
- Whole life insurance builds cash value. As you pay your premiums, your policy will accumulate value.
- You may be able to obtain a loan against the cash value of your policy.
- Whole life insurance is often more expensive than term life policies.
Deciding on term or whole life insurance will depend on your specific circumstances. Consider your current assets as you think about what expenses your loved ones might face without you. The age of your children, the amount left on your mortgage and how much you have in savings can each affect which type of life insurance might be right for you.
*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.