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Buying life insurance is about as fun as doing the laundry or getting your driver’s license renewed. However, having life insurance coverage is absolutely essential. And when you begin to consider buying a policy, you’ll need to start by answering the age-old question: “How do you choose between term vs whole life insurance?”
There’s no right or wrong answer to the question of whether term life insurance or whole life insurance is best — it depends on your means and your needs. But we’ve put together this guide to help you understand the differences so you can decide whether term life or whole life is right for you.
Picking a term life or whole life policy is only possible if you know how these two types of life insurance work. Once you understand how they function and their pros and cons, you can move forward with a plan and lock in life insurance coverage that works for you.
Term life insurance is one of the main types of life insurance, and it offers a death benefit for a preset period or term, usually 10 to 30 years. You’ll pay a fixed premium for the amount of coverage you want during that time, but your heirs won’t receive anything if you die after your term life policy period ends. Term life insurance is also sometimes referred to as pure life insurance because it’s just insurance without a savings or investment component.
Most term life policies come in two forms — level term or decreasing term. Level term policies (also known as level premium policies) have the same death benefit for the duration of the term, whereas decreasing term life policies offer a lower death benefit as time goes on.
Whole life insurance is the other main type of life insurance — it aims to last your whole life, no matter how old you are when you die. While this means you could be paying premiums on your policy for many more years than term life, your monthly premium amount locks in at the beginning of your policy and never changes.
You’ll also build cash value that you can borrow against, thanks to the savings component of whole life policies, and many whole life companies pay dividends as well. It may even be possible to use the cash value from your policy to pay your whole life premiums.
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Let’s take a look at the key differences between term life insurance and whole life insurance:
Term life insurance Whole life insurance Policy length 10 to 30 years Your life span Fixed premiums Yes Yes Builds cash value No Yes Potential for dividends No Yes Cost Less expensive More expensive Available with no medical exam Sometimes, depending on the provider No The advantages of term life insurance include:
Premiums can be incredibly low Policyholders can choose their own policy period Easily purchased online Premiums are fixed for the length of the term May be convertible or renewable depending on your policy But there are also a few disadvantages of term life insurance:
Only lasts for a limited time No cash value On the other hand, these are the advantages of whole life insurance:
Build cash value you can borrow against or withdraw Guaranteed death benefit for your heirs provided you keep up with premiums And the disadvantages of whole life insurance include:
Premiums can cost 10x (or more) when compared to a term life insurance policy Mediocre returns for the amount you pay in when compared to other potential investments Click here to compare life insurance plans for free using Policygenius.
You’ve probably noticed the main advantage of whole life by now — your death benefit is guaranteed no matter how long you live, provided you pay your premiums for life. With that being said, the major downside of whole life insurance is the higher cost. By and large, you can expect to pay at least 10 times more for whole life insurance than you would for term life coverage in the same amount.
While the cost of life insurance overall varies dramatically depending on your age, how much coverage you want, the term of your policy, your health and other factors, we priced out coverage with several life insurance companies to create a comparison study.
Here’s what a 40-year-old woman or man in excellent health could expect to pay for a whole life or term life policy worth $250,000 or $500,000. The figures below are estimates and will vary based on your insurance provider, your age, your health and other factors:
$250,000 in term life insurance, 20-year policy $500,000 in term life insurance, 20-year policy $250,000 in whole life insurance $500,000 in whole life insurance 40-year-old woman in excellent health Starting at $20 per month Starting at $33 per month Starting at $263 per month Starting at $522 per month 40-year-old man in excellent health Starting at $23 per month Starting at $42 per month Star
Term life insurance vs. whole life insurance: Which is best for you?
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