The Extraco Banks Blog

Whole Life vs. Term Life: Which Life Insurance is Better?

Category
Insurance
Posted On: November 18, 2022
Insurance

Choosing a life insurance policy can feel like walking through a labyrinth. Different types of policies, costs, benefits, and the fine print can be confusing. 

Which insurance is best for you: whole life insurance or term insurance? Let’s look at the differences between each so you can decide.

 

Whole Life vs. Term Life: How do they differ?

Whole life provides insurance coverage throughout your life, regardless of your age and health, if you continue making the premium payments, making it one kind of permanent life insurance. Whole life also accumulates cash value over time as an interest-bearing insurance policy that earns a fixed interest rate.

Term insurance is often more affordable than whole life and provides coverage for a specified period or term, typically 10-30 years. It offers fewer benefits than whole life insurance, but it can be a good choice if you’re looking for more affordable coverage or if your needs change over time. 

 

Costs and Benefits

Although whole life insurance typically costs more than term life insurance, it can be a valuable asset for people looking for lifetime coverage and the ability to build cash value. Policyholders can access this cash value by taking out policy loans or making withdrawals. In addition, they can use it for various reasons, such as supplementing retirement income or paying for unexpected expenses. However, the downside of accessing the cash value is that the policy loan decreases the death benefit payout by the outstanding amount of the loan.

One of the most significant advantages of term life insurance is its cost. While term insurance is generally more affordable than whole life, it doesn’t offer the additional benefits of whole life. Term insurance is strictly life insurance. There is no cash value, and it doesn’t gain interest. However, it’s more affordable, and most term insurance providers offer additional policy riders. There are different riders to choose from, such as:

  • Increase in benefits
  • Child rider
  • Critical illness
  • Waiver of premium
  • Accidental death

 

When Should You Purchase Whole Life vs. Term Life

If you are young, healthy, and looking to save money on premiums, then a term life policy might be a better option. Term insurance premiums are often based on your age and health and are typically much lower than those for whole life policies, so you get more coverage for your money. And, if you only need coverage for a specific period - such as until your children are out of college - then a term policy will likely suffice.

Alternatively, a whole-life policy might make more sense if you are an older adult or have health issues. The premiums for whole life policies are not based on your health, so you can still get coverage even if your health has declined since you first purchased the policy. Additionally, whole life policies build cash value over time, which can cover retirement expenses or leave a financial legacy for your loved ones.

 

Which Life Insurance is Best?

Choosing the best life insurance policy depends on many factors, such as:

  • Your needs
  • Your family’s needs
  • Your budget
  • Term vs. permanent
  • Coverage amount

Remember, if you have a family with dependents, you’ll need more coverage than someone who doesn’t. To determine how much coverage you need, speak to an experienced life insurance agent. Then, compare insurance providers and research your options to choose a policy that makes sense for you.

 

Tips for Choosing the Right Life Insurance Policy

It’s essential to have life insurance, but it can be challenging to choose the right policy. Here are a few pointers for selecting what’s best for you.

  • Consider your and your family’s financial needs.
  • What length of policy makes sense?
  • How much coverage do you need?
  • Compare quotes from different insurers.
  • Consider your budget.
  • Understand the benefits and drawbacks of each approach.
  • Choose an insurance plan based on your needs.

 

The Final Word

Whole and term life insurance are both essential tools that can help protect your family’s financial future. However, they differ in several ways, and knowing the differences is vital. Yet, it’s also essential to understand what you and your family needs. Then, weigh your options against your needs to choose a policy that makes sense.

If you’re still undecided, contact our professionals for guidance. Our experienced life insurance agents are here to help you decide which approach is right for you.

 

Sources

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