Whole Life Insurance vs. Term Life Insurance

Which is better: whole life insurance or term life insurance? Like many of life’s pressing questions, the answer is, it depends.  To make the decision a bit simpler, let’s first level the playing field by agreeing that neither one is necessarily better than the other. They are different sides of the same coin, each with its own advantages and drawbacks relative to your particular situation. So it stands to reason that the easiest way for you to make the call on whole life insurance vs. term life insurance is to take an assessment of your life. Some questions to ask are:

Do you have a spouse, dependent children or others who rely on your income?
If the answer is no, then you probably don’t need life insurance at all, unless you want to leave money to a favorite cause or take out a small policy to cover your final expenses. Life insurance is for the living you leave behind. You can’t take the payout with you, so put your money into something that will provide a reward while you’re alive.

What can you reasonably afford to pay in annual premiums?
A lot of people who opt for term life insurance vs. whole life insurance do so because of the cost. Term life is cheaper as a rule because in most instances it doesn’t accrue cash value. You contract for a term of coverage (up to 30 years in most cases), specify the amount of coverage you want and agree to pay a fixed rate for the life of that term. In return, you get the peace of mind of knowing

How old are you?
Generally, all life insurance is cheaper the younger you are.  If you’re 50 or older, both types will be more expensive than when you were 20, 30 or even 40 for the simple reason that you’re closer to your expiration date on the actuarial tables.  There are still values available for both term life and whole life insurance if you shop around. Online is a good place to look for life insurance quotes.

How healthy are you?
Whole life insurance policies require that you take a medical exam. Some term policies will let you get by without that, but the death benefit will be capped, usually at a maximum of $50,000.

After you’ve answered those questions, consider these relative benefits and drawbacks when deciding between whole life insurance vs. term life insurance.

Whole life insurance provides a rate that is permanently fixed, making it less expensive in the long run. The terms and conditions of your policy can never change or be canceled as long as you pay your premiums. After the first few years, your policy begins to accrue cash value. However, whole life offers less flexibility and is usually more expensive during the early years of the policy at a time when your income is typically lower.

Term life insurance is extremely flexible with rates that are fixed for the life of the term. You can determine exactly how much you need to cover any debt (mortgage, college, loss of income) you might leave behind. As you get older and those obligations diminish, you can adjust your coverage when you renew your term. However, policy increases can increase significantly at renewal because of your age.  There is no cash value accruing. This expense only pays off if you die during the term of the policy.

