What's the Difference Between Whole and Term Life Insurance?

(Get your answer from an expert)

Q: What is the difference between whole life and term life insurance? Which life insurance policy is best for me and my family?

A: All life insurance at its most basic level is term life insurance. Term insurance is simply a year-to-year policy that charges a premium appropriate for the insured’s age, gender, and physical condition. When the insured is young and healthy, term insurance is cheap. However, when an insured is older or less healthy, term insurance is more expensive. 

Whole life insurance is a way that a person can buy insurance when they are younger with the intent of keeping it most of their life. The whole life policy takes the premiums of their expected life and averages them to a level amount each month/year, so the cost can then be budgeted. The amount of premium above what is needed in the early years is placed in an account that is held to make up for what is needed in the later years, or its cash value can be withdrawn if the policy is no longer needed.

Example: A healthy 28-year old man is getting married and he wants to make sure that he has life insurance in place to take care of his bride. He talks to his agent and decides that he wants a long term solution. A whole life policy could provide him with the death benefit he considers appropriate, but at premiums that he can afford early in his career. 

Many decades later, and thankfully still alive and kicking, he realizes that he no longer needs life insurance due to successfully saving for retirement. He has built a modest cash value in the policy and decides to cash it in to take the whole family, including grandkids, on a vacation to Hawaii.

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