Term vs Whole Life Insurance

  • Oct-19-2016
  • Richard Reich
term vs life insurance

Deciding which type of life insurance product is right for you can be difficult; regardless of whether you’re considering retaining your current policy or you’re shopping for new coverage, it’s important to note that there are benefits to both term life insurance and whole life insurance. Which is the best fit for your needs, preferences, lifestyle, and family? Here, we discuss Term vs Whole Life insurance.

There are some key differences and similarities between these two types of coverage. As for similarities, they both offer a guaranteed death benefit, and they both offer generally federal tax-free benefits. But let’s consider some of the differences between whole life insurance and term life insurance.


Whole Life Insurance and Its Value

Whole life insurance premiums are generally higher initially than those for term life insurance because the premiums are guaranteed to stay the same for the life of the policy.

A whole policy offers tax-deferred cash value accumulation, which you can access through partial surrenders or policy loans. This growth is dependent upon premiums being paid, as well as your eligibility to earn dividends, and grows slowly during the life of the policy. The dividends are also usually not guaranteed. Therefore, you can borrow against the value of your policy by way of a loan, and use the funds for any purpose. However, if any policy loans aren’t repaid with interest, the death benefit is reduced.

The key benefits of a Whole Life Policy are:

The policy will never cancel unless the policyholder fails to make the periodic premium. Even if that happens, the insurer can deduct the premium amount from the cash value if it is sufficient to keep the policy in force.

Once the policy is issued, the premiums will never increase over the life of the policy, even if the policyholder gets a terminal illness or must live in a nursing facility.

The policy will build cash value over time and earn the minimum interest that is stated in the policy.

Any unpaid policy loans are deducted from the death benefit when the policyholder passes.

The Value of Term Life Insurance

Term life insurance, on the other hand, offers much lower, inexpensive premiums initially that are guaranteed for that initial term; this makes term life insurance a popular choice for those who need coverage at a low rate now. There are privileges that are often available with many policies; these would enable you to convert to a permanent policy that builds cash value without the need for additional medical underwriting.

Terms are usually designed for anywhere from one to 30 years, with the most popular coverage term being 20 years. With most policies, the premium is going to remain the same through the duration of the term, so if you purchase a 30-year term policy, the premium you pay wouldn’t increase during that 30 year policy period. Many people appreciate the ability to change the length of their policy, which is unavailable with whole life insurance plans.

Most term insurance policies will also allow the applicant to purchase optional coverages that will broaden the policy and offer living benefits. Some of the most popular options (riders) are:

  • Accelerated Death Benefit – This benefit provides for the insurance company to pay the Insured a percentage of the death benefit if he or she is diagnosed with a terminal illness that will result in death in 12 months. The amount of the advanced benefit is then deducted from the death benefit when the insured dies.
  • Accidental Death Benefit (ADB) – The ADB provides for the insurer to pay a multiple of the death benefit (usually double) if the insured dies as a result of an accident.
  • Waiver of Premium – This rider provides for the insurer to waive the premiums that are due if the insured becomes disabled and is unable to work.
  • Return of Premium – The return of premium rider provides for the insurance company to refund all premiums paid into the policy if the insured outlives the policy term. The refund is non-taxable and typically paid in a lump-sum.

To Choose Term or Whole Life?

Your personal situation is going to be the best determinant of which type of policy is best for you. Whole life insurance might suit you best if:

You need coverage at higher, but steady premium for the rest of your life

You want to provide money for heirs to pay estate taxes

You want to make inheritances equal

You want to spend your retirement savings and still leave money for things like funeral costs

Term life insurance, on the other hand, would best be suited for these candidates:

You want the most affordable coverage

You need permanent life insurance but cannot afford it

You want a policy that you can convert to permanent coverage

You need life insurance to only cover a certain period of time, such as while you’re raising children or paying on your mortgage

You have a family that needs life insurance coverage for every family member


Since different types of policies are best suited for different people, and even at different stages of their lives, it’s important that you obtain the right kind of coverage. For answers to your questions about term vs whole life insurance and to shop for life insurance quotes online without obligation or divulging sensitive information, browse the Education Center of our website or call us at your convenience at (866) 691-0100.
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