What Is Whole Life Insurance, and How Does It Differ from Term Life?

Are you among the 52% of Americans who have life insurance — or the 48% who don’t?

If you fall into the second category, it could be because you think life insurance is more expensive than it actually is. Or maybe you’re just confused when you read the fine print and try to understand the differences between whole life vs term life policies.

What is whole life insurance? How does it differ from a term life insurance policy? Most importantly, which is the right choice for you?

Keep reading to learn more!

What Is Term Life Insurance?

When you purchase a term life insurance policy, you select a period (or term) of time — usually between 10 and 30 years.

The policy covers you for that fixed period of time and pays out your beneficiaries if you die during that time. If you outlive the term, it simply expires and no one receives any money.

What Is Whole Life Insurance?

Whole life insurance, as the name suggests, covers you for your whole life. Whether you die tomorrow or 50 years from now, the payout will be the same.

This type of insurance policy also accrues a cash value over time, which could make it an attractive option (if you can afford it). There’s more info here discussing the ins and outs of whole life insurance.

Whole Life vs Term Life: Pros & Cons

Of the two options, term life insurance policies are considerably more affordable. You can choose the length of the term to match your needs — for example, a new parent might buy a 20-year term policy to ensure their child is financially protected if they die.

The drawback of term life insurance is that there’s no benefit if you outlive your term. You’ll either need to apply for a new policy or go without coverage. There’s also the chance that your premiums and payouts can fluctuate over time.

Whole life insurance costs considerably more, and you’ll be paying it for the entirety of your life. However, the premium remains the same and never changes for the duration of the policy.

With a whole life policy, you’ll also build cash value (thanks to a savings component) that you can eventually borrow against. Many whole life insurance companies also pay dividends, which could make a real difference during your retirement years. It might even be possible to use the cash value to pay your whole life premiums.

The whole life policy benefits are clear, but you need to make sure it fits into your budget. For example, a 30-year old man can expect to pay about $227/year for a term life insurance policy. If that same man were to purchase whole life insurance, his premiums would add up to nearly $5,000/year.

Is a Whole Life Insurance Policy Right for You?

So, what is whole life insurance?

Now that you know the answer to that question, you’re in a better position to decide between whole life vs term life. Whichever decision you make, you’ll rest easier knowing your loved ones will have the financial support they need.

Looking for more great financial and lifestyle advice? Keep browsing our blog for other informative articles like this one.