Whole of Life and Term Life insurance are two of the oldest varieties of life insurance. Many people know that both policies will provide a lump sum payout to their beneficiaries if they pass away. But not everyone can distinguish between the two.
In this post, we’ll discuss the basics of Whole of Life and Term Life Insurance, their respective sets of positives and negatives, and what to consider before choosing one over the other. Also, don’t forget to check out Caspian Insurance if you’re looking for a suitable policy for your family or business.
What Is Whole of Life Insurance?
Whole of Life is the simplest form of permanent life insurance that provides lifetime coverage. In other words, the policy will never expire as long as you pay your premiums during your lifetime. With Whole of Life plans, policyholders don’t need to worry about losing their safety net when they get old.
What Is Term Life Insurance?
Term Life insurance is a policy that provides coverage for a set period of time, usually between 10 and 40 years. With this cover, your beneficiaries will receive a payout if you pass away during the term. That means if you outlive the term policy, your insurer won’t pay a death benefit. Additionally, the risk cover ceases to exist if you surrender the policy.
Whole of Life vs. Term Life Insurance
Advantages of Whole of Life Insurance
A whole life policy doesn’t expire but stays in effect as long as premiums are paid. If you want to be covered for the rest of your life, Whole of Life insurance is for you.
A Whole of Life policy guarantees payment of a death benefit to your beneficiaries regardless of when you pass away. Your beneficiaries receive the policy’s face value, minus any amount you may have taken out of the cash value.
Whole of Life insurance premiums will remain the same for as long as you live. You can even do your calculations to establish exactly how much you owe. Conversely, the total premiums payable will vary by the time of your death.
Advantages of Term Life Insurance
Lower Premiums Than Whole of Life
Generally, Term Life insurance has a lower premium outlay than other types of life insurance. If lifelong bills for a Whole Life policy aren’t appealing, this may be right for you.
Younger People Pay Lower Premiums
Because insurance is all about risk, insurers consider younger people to be less of a risk. As a result, you pay lower premiums when you’re younger.
Perfect for Short Coverage Periods
Term Life insurance is suitable for temporary needs. For example, a 20-year policy will cover expenses like education and mortgage for that 20-year term.
Convertible to Whole of Life
Most insurance companies allow you to convert your Term Life insurance to a Whole of Life policy. You’ll often be charged higher rates once the conversion is complete.
Drawbacks of Whole of Life and Term Life Insurance
Whole of Life Insurance
- The policy is more expensive than comparable term policies.
- You could face surrender charges if you let the policy lapse within the first few years of the contract.
- Your death benefit will reduce if you have any outstanding debts.
Term Life Insurance
- Protection is only available for a specified period, so it’s up to you to renew the contract to keep your family protected.
- After the term period expires, many policies may become unaffordable as they’re guaranteed to renew annually at a higher premium.
- Taking out a Term Life policy while you’re older could mean your premium will be higher.
Making a Choice Between Whole of Life and Term Life Insurance
Choosing between Whole of Life and Term Life will depend on your individual circumstances and budget. To help you make an informed purchase decision, we recommend you ask yourself the following questions:
- How old are you?
- Do you have anyone who depends on you financially?
- If you have dependents, how much financial support do they need?
- What’s your health status? Are you diagnosed with any condition?
- What are your retirement plans?
- Do you have any higher education plans for your children?
- How much debt do you owe in mortgage and other loans?
- Do you have any plans for your funeral expenses?
Whole of Life vs. Term Life: Which One Is Better?
Both Whole of Life and Term Life insurance have their respective advantages and disadvantages. The policy you choose will depend on multiple factors, including your age, state of health, outstanding debts, retirement plans, etc.
Generally speaking, Whole of Life insurance is right for you if you have long-term dependents and want to guarantee a payout for them once you are gone. On the other hand, Term Life insurance may be suitable if you’re on a budget and are just looking to leave behind a death benefit to cover expenses.
At the end of the day, no one life insurance policy will be suitable for everyone. You might want to consult a licensed life insurance expert to help you figure out which one between the two policies will suit your needs.