What’s the Difference Between Term and Whole Life Insurance?
Choosing the right life insurance policy can be a confusing process. A lot of questions pop up in one’s mind and one might even find themselves asking — why there is such a thing as a life insurance policy with an end date? Yes, it exists! And we call this coverage ‘term insurance plan’.
Compared to its life-long counterpart — whole life insurance — term insurance is less expensive, but doesn’t provide nearly as much coverage. Let’s examine the differences between them.
What Is Term Life Insurance?
Term life insurance is a ‘pure’ insurance policy where the policyholder has to pay premiums on a regular basis. If the policy owner dies while the insurance is still in effect, his or her beneficiary (or beneficiaries) are liable to receive a lump sum amount as a death benefit (sum assured).
Term life insurance is a straightforward coverage available for a limited period of payment years and is convenient for those who want a simple insurance option. Additionally, term life insurance is also quite inexpensive, since there are no additional fees or maintenance charges.
Here are the main features of term life insurance:
- It provides death benefits only.
- It is purchased for a pre-defined time period or term, such as 10, 15, or 30 years.
- It is easy-to-understand life insurance and provides high coverage at a low premium.
- It needs to be renewed to be still in effect once the term ends.
- It can also be used as additional coverage with whole life insurance.
- It can be converted to permanent life insurance.
What Is Whole Life Insurance?
Like term insurance, whole life insurance also offers a death benefit to the policy owner. What differentiates them, however, is the duration of the policy. While a permanent policy ends only when the policyholder dies, term insurance remains effective for a certain time period. Whole life insurance also provides cash value that accumulates over time and can be borrowed or withdrawn as required.
Here are the main features of whole life insurance:
- It provides coverage for a lifetime at level premiums.
- It is relatively more expensive than term life insurance (sometimes even costs 6-10 times more).
- It offers death benefits as well as cash value accumulated over the years.
- Thanks to its cash value element, some amount of insurance money can be used in the personal finance or estate planning as needed.
- It acts as a tax-deferred savings vehicle.
- It provides some financial protection to your family after you’re gone. This includes the funeral arrangements, mortgage payments, care of disabled loved ones, college tuition, as well as basic needs like food and childcare.
How to Decide Which Life Insurance Policy Is Right for You?
Selecting life insurance is a subjective decision that should be made after analyzing the various aspects thoroughly. This includes the financial needs of your beneficiaries, your income, as well as your financial goals. With the right insurance policy, you can effectively meet multiple financial objectives — from gaining financial security to building financial assets.
If you are in doubt, seeking an insurance expert’s help is a great way to avail the most of your life insurance policy. Contact our team at Mauceri Bynum to find the best coverages from numerous insurance companies. We not only help you navigate through them all but also provide complete peace of mind with fast, affordable, and efficient services. We also offer full life insurance quotes online!