Understanding Term vs. Whole Life Insurance

Term vs Whole life insurance

Life insurance comes in many varieties with a diverse selection of options. For many interested in applying and securing life insurance, this often means confronting the differences, advantages, and disadvantages of the two most common types of life insurance policies: term and whole.

Each kind of protects your family and adds security to your financial and personal life, but they work in different ways with a number of unique elements.

Exploring the differences between term and whole life insurance

Term life insurance offers you coverage for a variable period of time and because of that, it is cheaper simpler. On the other hand, whole life insurance can give you lifelong protection but at a higher cost and with more complexity.

When taking a more detailed look at the differences between whole and term life insurance, you’ll see even more important advantages (and disadvantages) for each type (like the option of getting life insurance without a medical exam). And, if you want to go even further with this comparison, visit NCBI’s discussion of term and universal insurances (of which whole is a type of).

Difference between Term and Whole Life Insurance

FeaturesTerm life insuranceWhole life insurance
Duration1-40 yearsLife
Cost$25-35/monthUsually 5-15x more expensive than term
Guaranteed death benefitYesYes
Guaranteed cash valueNoYes
How cash value growsIt doesn'tEarns interest at a predetermined fixed rate
PremiumsCan increase periodically or stay level for the policy durationLevel
RisksNo risk of losing coverage but no cash value when the term endsNo risk compared to other permanent types but you may find better investment options elsewhere

What is Term Life Insurance?

Term life insurance covers you only for a segment of time, but it helpfully protects dependents and beneficiaries in the unfortunate circumstance that the policyholder passes away prematurely. That’s why these kinds of life insurance policies have an effect only during certain intervals which are usually 10, 20, or 30 years.

However, other than the final payout to your dependents and others you name, this kind of policy has no other value during its coverage, including no savings or a cash value component. But, until the end of the term, the policyholder can:

  • Convert the policy to permanent coverage,
  • Continue the policy until age 80-95 (depending on the company) at an increased premium, or
  • End the policy completely.

Advantages of term life insurance

  • Term policies are often the cheapest because of their simplicity and limited duration.
  • Term life insurance premiums, based on your age, health, and life expectancy, are often lower than other alternatives.
  • More flexibility in choosing terms, amounts, renewal & cancellation options.
  • Usually faster to get – you can even qualify for a no exam life insurance in a few minutes.

If you are looking for a simple and quick way to leave something behind when you die, term life insurance is most likely your best option.

Disadvantages of term life insurance

  • Limited duration and at the end of the term, you won’t get any cash back (no cash value)
  • Because there is no cash value, it cannot be used as an investment (only for the protection and peace of mind) or estate planning

How to assess and buy term life insurance

Shopping for term life insurance means deciding how many years you want to cover, especially during periods when you are providing for dependents and handling a household. In the ideal situation, you will have this insurance only as long as you need it. You’ll need term life insurance primarily when you:

  • are still working to provide,
  • have remaining dependents or children,
  • don’t have a plentiful savings safety net, or
  • you have yet to pay off debt liabilities, such as a mortgage.

You will also choose the amount that will adequately cover you and provide essential benefits to your beneficiaries. The total amount should replace your income many times over and help protect your family when they lose your support and the services you perform.

Luckily, as you shop, most of the leading insurance companies offer a term policy, and you’ll find it easy to get a quote online when you use a company that carefully monitors the industry to reveal the best possible options.

And, you might want to learn about Sproutt to see which rates apply to you considering your lifestyle, health, and life expectancy.  Such tools can help you take these necessary steps during your selection process:

  1. Learn the top reasons to choose a term policy. Some of the topics you might look into will include lower premium rates and a lesser commitment to high and permanent premiums for the rest of your life.
  2. Calculate your debts and financial situation.  Without understanding the full financial picture in your life (current and future expenses), you may not be able to adequately predict and support the needs of your family after your death.
  3. Decide on your preferred term of coverage. Preferred terms are chosen to protect your beneficiaries for a limited time when you only need coverage until your children gain independence and your debts are resolved.
  4. Choose a death benefit amount to fully safeguard your family. Many ways exist to determine appropriate payout amounts for many different situations, but each policy-seeking shopper is unique in this area (like saving for college tuition or paying back loans).
  5. Compare quotes from your shortlist of insurers. A quote comparison is one of the sole ways that life insurance shoppers evaluate potential policy providers, and it gives significant insight into your options as a consumer.
  6. Buy the policy that offers the best price and amount. You’ll need to file an application and satisfy all conditions of coverage, often including a medical evaluation and documentation.
Differences between term and whole life insurance

Differences between term and whole life insurance

What is Whole Life Insurance?

Through whole life insurance, you gain lifelong coverage and an attractive savings option through a policy holding cash value, which you can use in different ways (on top of the death benefit). It’s the most common type of permanent life insurance.

As the value of the policy slowly and incrementally increases, it goes into a tax-deferred account that won’t factor into your taxes as it accumulates. With this, you can even borrow money against the growing account if you need extra funds.

Advantages of whole life insurance

  • Consistent premiums
  • Guaranteed benefits
  • Cash value with possible dividends that can support you through retirement, for example
  • Other investment options

Disadvantages of whole life insurance

  • Notoriously much more complex than a term life insurance
  • Generally much more expensive – 5-15x times the cost of a term policy with the same death benefit
  • Usually requires a medical exam (even if you have excellent health)
  • If you take a loan on it and can’t repay, it will reduce the total death benefit

How to assess and buy whole life insurance

When you are shopping for whole life coverage, it is essential to evaluate all the goals and needs you wish your policy to meet and satisfy. With this form of permanent insurance, you can meet the challenge of securing lifelong coverage, level premiums, and guaranteed benefits with a consistent cash value return when you earn dividends. But before you apply and agree to conditions, it can be wise to consult a financial advisor or life insurance broker.

For now, if you wonder whether a whole life insurance policy is a good choice for you and your family, consider these situations. If you need coverage for a lifetime, if you want a static and stable premium, or if you need cash value to make gains and handle unexpected costs, whole life insurance is a smart option. You can follow these action steps to make sure you select the best among the huge diversity of insurance companies:

  1. Assess the financial strength of the company. Like all companies, life insurance providers do not always wield the same resources. For that very reason, it’s important to be certain that the company can sustain its benefits.
  2. Investigate their reputation for customer satisfaction. Take a look at complaint indexes from the National Association of Insurance Commissioners to form a solid understanding through its reference.
  3. Choose an appropriate coverage amount for your situation. Understanding your priorities for coverage allows you to choose an amount, small or large. But, not all companies offer both, so it can have a big impact on the search.
  4. Consider the rider options that are offered from them. Riders can add features to your whole life policy for an additional cost, and options like a disability waiver or accelerated benefits in the event you become terminally ill.
  5. Evaluate whether the rate of return on cash value satisfies you. A percentage of your premium will be added to savings as you pay on this kind of policy. Confirming that you earn competitive dividends and useful value becomes very important.
  6. Compare the fine details of coverage between quotes before buying. Life insurance companies use quotes to categorize and match customers with their best offers. Attention to offer details helps you confirm your choice.

Whatever you decide about your term vs. whole life insurance options, the reasons for your decision on insurance should be carefully calculated. This way, your family is appropriately safeguarded from financial disaster. You’ll ultimately have to decide which is better, term or whole life insurance.

Choosing between Whole and Term Life Insurance with Sproutt

Sproutt brokers both whole and term life insurance through their advanced tools for observing premiums, analyzing benefits, and mining information from the market. We offer coverage quotes for insurance shoppers to see how they can add security to their lives at present and alleviate some of the pain and difficulty of a future death in the family.

The simple quote process from Sproutt can be completed in minutes, and you’ll see a diverse set of options for your unique coverage, premium, and investment desires. To see the right policy for you and your loved ones, use our free calculator and get a free quote right now.

Get an instant online quote for life insurance.