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 term life vs. whole life insurance policies. They wonder, “What’s the difference between term and whole life insurance?” 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.

To begin with a high-level difference between term and whole life insurance, term life insurance offers you coverage for a variable period of time. For example, you might choose a 10-, 20-, 30 or even 40-year term to protect partners, children, and dependants. Because this traditional form of life insurance will guarantee death benefit payouts, it is often called “pure” life insurance. This suggests it works for many people as a secure and solitary form of insurance while the covered is within the level term period.

On the other hand, whole life insurance creates much more complexity for those first exploring their life insurance options. This more complicated agreement also tends to price at a higher rate than term offers which Statista calls a major factor for the decrease in life insurance holding.

At the same time, it is the most familiar form because it is a permanent policy until death. Part of the difference between term and whole life insurance is also the cash-value benefits of whole life insurance that provides added perks, allowing you to access funds when needed and even earn dividends.

When you take 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. And, if you want to go even further with this comparison, visit NCBI’s discussion of term and universal insurance (including whole policies).

Exploring the Difference between Term and Whole Life Insurance

To compare term life vs. whole life insurance, consider the following sections including the advantages and disadvantages of these policies. For your loved ones and beneficiaries, let them help you decide on the right form of life insurance.

Difference between Term and Whole Life Insurance

FeaturesTerm life insuranceWhole life insurance
Duration1-30 yearsLife
Cost$25-35/month5-15x more than term
Guaranteed death benefitYesYes
Guaranteed cash valueNoYes
How cash value growsN/AEarns 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

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.

Term life insurance premiums, based on your age, health, and life expectancy, are often lower than other alternatives. 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 cash-value elements. 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 increasing premium, or
  • end the policy completely.

With these options, term life insurance shows itself as a relatively flexible policy, allowing you to choose terms, amounts, conversion, renewal, and cancellation.

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, 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.
  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.

Observe key differences between whole and term life insurance. See their unique advantages, disadvantages, and shared attributes in our diagram.

Whole Life Insurance

Through whole life insurance, you gain lifelong coverage and an attractive savings option through a policy holding cash value, unlike the limits of traditional term 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.

Unfortunately, some are not able to repay the loans with their interest rates, and this reduces their total death benefit. In addition, these policies are notoriously much more complex than a term life insurance agreement, but they are actually one of the strongest and straightforward policies for permanent insurance. And, while many see this as a significant downside, the benefits of whole life insurance provide its policyholders with:

  • consistent premiums,
  • guaranteed benefits,
  • possible dividends, and
  • other flexible and investment options.

Policy seekers attracted to the option of earning through its savings component will find that whole life insurance protects against many more scenarios than term insurance which only serves a single—yet guaranteed—function.

How to Choose and Evaluate 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. They 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, complete Sproutt’s online quoting tool today.

Get an instant online quote for life insurance.