Life insurance provides policyholders with money for their beneficiaries in the event of their death. So, if they pass away, their heirs can claim on the policy and receive a financial cushion, typically providing them with more money than the deceased could give on their own.
But not all life insurance policies are the same. Significant differences between the two main types — whole and term — exist. One isn’t better than the other. It just depends on the living and financial situation of the policyholder.
Life insurance experts, like Domonique Rodgers of NC State, help individuals pick the perfect policy for themselves and their loved ones. But it doesn’t hurt to do independent research to establish the differences beforehand.
Whole Life Policies
Whole life insurance is permanent. In other words, they never expire, provided the policyholder keeps up with their premium payments. So essentially, they do exactly that — cover people for however long they live.
Within whole life policies, there’s also a cash value, which provides an additional source of funds for beneficiaries or tapping into for emergencies while the person is alive.
It’s the more stable option, as coverage never ends. However, the privilege comes at a price — whole life insurance plans tend to be more expensive than term life policies.
People pay more for whole life insurance early on, as the premiums remain stable throughout the policy’s duration (i.e., the holder’s entire life). However, as the person ages, the cost becomes cheaper than a typical term policy for older people.
On average, whole life insurance costs between five and 15 times more than term policies with equal death benefits. But many people appreciate the stability (and potential for withdrawals from the cash value).
Term Life Policies
Arguably, term life insurance is easier to understand than whole policies because it’s straightforward insurance without the cash value. Holders can’t withdraw money from the insurance early; it’s simply there to provide a death benefit for their heirs if they pass away.
Like other types of insurance, term life coverage is only valid for a pre-defined period. Typically, terms last between five and 30 years. Once the time is up, the policy expires.
These policies’ finite duration and simplicity make them much cheaper than whole life insurance. If people want a straightforward way to provide for their families when they die, they often choose term life coverage.
That said, the policyholder must pass away within the timeframe for the beneficiaries to receive a payout. If the person is still alive once the policy expires, they must take out a new plan. Because of their increased age, it will undoubtedly be more expensive than their previous coverage.
Most People Benefit from Life Insurance. But It’s Up to the Professionals and The Individual to Choose the Policy Type.
While both whole and term life insurance gives death benefits to heirs, whole life coverage tends to be more expensive. But many love the stability this increased cost provides.
