Term Life vs. Whole Life Insurance – the Pros and Cons

There are many different kinds of life insurance on the market, but two of the most popular are term life and whole life insurance. These two types of life insurance are among the most popular and the most valuable kinds of coverage, but it is important for those in search of a new or replacement policy to understand the differences between the two. Both term life insurance and whole life insurance have their advantages and their drawbacks, and it is always important to shop carefully.

Term Life Insurance
Let’s start our discussion with a look at term life insurance. Term life insurance is the simplest, and typically the least expensive form of life insurance coverage, and it is a good choice for many individuals and families. Term life insurance is designed to provide a death benefit – and only a death benefit. Unlike other forms of life insurance there is no investment element. Term life insurance provides only a death benefit. Buying term life insurance has a number of important advantages, including:

– Term life insurance is typically the least expensive form of coverage, making it a good choice for workers of limited means. Term life insurance also typically provides a higher death benefit for the premiums paid than other types of life insurance.
– Term life insurance is easy to buy and simple to understand. Since there is no investment element there are no complicated investment decisions to make. Many life insurance buyers like the simplicity and straightforward nature of this type of coverage.
– Term life is a great way to fill a temporary need. For instance many workers will purchase a term life insurance that covers the same time period as their mortgage. The purpose of this type of coverage is of course to pay off the mortgage if the breadwinner dies before the home is paid off. Term life is the perfect vehicle for this type of situation.

Of course no type of life insurance coverage is perfect, and it is important to understand the negative aspects of term life insurance as well. Some of the possible drawbacks of this type of coverage include:

– Term life insurance is not permanent. As the name implies, a term life policy is in place for a set period of time. Once that time has passed a new policy must be written, and that policy may come with higher premiums.
– If the policy is canceled or not renewed the insured gets nothing back. While many whole life policies provide a cash back provision, term life policies do not.

Whole life insurance provides a different set of advantages and disadvantages, and it is important for shoppers to understand those pros and cons. Whole life insurance is designed to provide an element of investment along with a basic death benefit. Some shoppers will like the idea of combining investments with insurance, while others will prefer to keep the two separate. Let’s start with the advantages of whole life coverage.

– Whole life insurance can provide permanent insurance. Unlike term life insurance, which expires after a set period of time, whole life coverage is typically in place for life.
– Policyholders may be entitled to money back even if the policy is cancelled. Unlike term life insurance whole life insurance provides the opportunity to take money out while the insured is still alive.
– Whole life can be cashed out while the insured is still alive. This cash out provision is one of the most popular parts of whole life, and that cash can be used for all manner of expenses.

While whole life certainly has a number of advantages, it is important for shoppers to be aware of the potential drawbacks as well. Some of the potential pitfalls of buying a whole life insurance policy include:

– Whole life policies can be expensive. Compared to comparable term life policies whole life insurance coverage can be quite costly. It is important for shoppers to compare policies carefully and be sure they can afford the extra costs.
– Whole life can be confusing. Unlike term life whole life provides an element of investment along with the death benefit. The insured will need to determine not only how much coverage is needed but how the premiums are to be invested as well.
– The returns on the investment portion can fluctuate. Since the premium payments can be invested in a number of different ways the returns of the cash portion of the policy will vary. It is important for whole life buyers to understand the investments they choose.

By understanding the differences between term life and whole life insurance shoppers can be sure they get the coverage they need at a price they can afford. Life insurance is an essential purchase, and it is important for those in need of coverage to understand all their options.