What is Term Life Insurance vs. Whole Life Insurance
If you’re a parent, chances are that deep down—you know you need life insurance. Whether you’re a working mom, a single mom, a stay-at-home-mom, or prefer the term Super Mom, nothing is more important than protecting your family from the most unexpected of life events.
However, acquiring the right life insurance for you is easier said than done. Even simple policies mean hurdles like medical exams, endless quotes, policy comparisons, and so much more—all just to pay one more bill for something you’ll hopefully never need. With a million other things on your plate, is it really worth it?
Aside from a few exceptions, the answer is nearly always yes. With some policies starting as low as $5/month, the peace-of-mind in knowing that your family will be protected is often worth it. In addition, understanding different policy options is easier than you might think.
So, what are these different policies? Though there are several more out there, the two most common are term life insurance and whole life insurance. Let’s find out exactly what they are.
Why Get Life Insurance?
Before diving in too deep, why should you even get life insurance in the first place? Frankly, it’s the best way to ensure your family’s monetary security in the event of your unexpected passing. No matter what kind of income you bring home, losing you will almost undoubtedly affect finances if you lack coverage.
With life insurance, your beneficiaries (most likely your children and/or spouse) will receive a tax-free payout, also known as a death benefit. With this money, they can use it for things like:
- Funeral expenses
- Extracurricular activities
- Rent & mortgage
- Paying off any remaining loans
- Car payments
- Any and all needed expenses
Especially if you complete a will, this money can be used however YOU best see fit. During an emotionally difficult time, imagine the gift of one less thing for them to worry about.
What Is Term Life Insurance?
This is the most popular form of life insurance. Typically, policyholders are approved for a term of between 1–30 years. The majority of term life insurance policies run for about 15–25 years.
Term life insurance is a fantastic choice for parents as it protects your children during the time they are most financially dependent on you. Ideally, by the time the term ends, your children will have left the nest and a policy with a lower payout—and possibly a lower premium—could work in your favor.
The biggest perk of term life insurance is its affordability. It’s vastly less expensive than whole life or other permanent options. It’s also the least complicated with few customizable add-ons like building interest or the ability to take out a loan against your insurance.
However, once your term is up, no payout is received and it will expire. This means that if you still want coverage, you’ll have to renegotiate or start a brand-new policy altogether. Though this may not be a problem if you’re still healthy, any significant health issues that have popped up since your initial quote will likely mean higher rates.
To sum it all up, term life insurance is a no-frills yet incredibly effective way to protect your family’s financial future. Just pay that premium each month and they’ll be guaranteed to receive the agreed upon payout in case of your death.
What Is Whole Life Insurance?
Whole life insurance is a form of permanent life insurance. Essentially, you’ll have this policy and the established premium and payout guaranteed for life. This means no matter what illnesses you may be diagnosed with or life changes occur, you’ll always gets what you initially signed up for, until your death.
Another benefit of whole life insurance is how its value actually builds up over time including what’s called a “cash value” amount. Every monthly premium is split with some of it going towards the death benefit, and the rest going into an investment determined when starting the policy. Once you hit a certain point, policyholders can take out loans against the cash value for things like education, a new house, or retirement.
The major downside is that it’s much more expensive. On average, the monthly premium is about 6–10 times more expensive for whole life insurance vs. term life insurance. However, if you love the idea lifelong security, are looking for alternative ways to invest, or have complicated finances, it may be well worth the extra cost.
What’s Right For Me?
Ultimately, no one knows your family and your financial history and plans like you do. Take some time dig deeper into the pros and cons of term life and whole life insurance check out the chart below to help you out.
Term Life Insurance vs. Whole Life Insurance
|Term Life Insurance||Whole Life Insurance|
|More affordable||More expensive|
|Expires at end of term||Never expires|
|No cash value||Cash value|
|Premium stays the same||Premium stays the same|
|Less complicated||More complicated|
|Fewer plan options||Customizable Plans|
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