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Should you buy term life or whole life insurance?

By Maryalene LaPonsie on November 21st, 2011

Shopping for life insurance? You'll need to decide between a term life policy and a whole life policy. Both offer financial protection for your family, but each has unique benefits.

To select the right type of life insurance, carefully consider your particular needs.

Buy term life for temporary, affordable life insurance

Term life insurance is straightforward: You buy a policy with a specific death benefit for a specific length of time. For example, let's say you purchase a $50,000 policy with a 20-year term. If you die within those 20 years, your beneficiaries receive $50,000. If you are alive at the end of the 20-year term, you receive no benefits and will need to purchase a new policy to maintain your coverage.

Term life can be a smart choice if you're on a tight budget. These policies offer lower premiums compared to whole life. In addition, term life makes sense if you're seeking temporary life insurance – such as during the years when your children are at home.

While term life is affordable, it comes with a serious caveat: If your health condition changes before the end of the term, you may not be able to renew your policy or buy a new plan.

Buy whole life for guaranteed permanent coverage

Whole life insurance guarantees lifetime coverage so long as policy premiums are paid. Most whole life policies guarantee fixed premiums for the life of the plan.

Whole life insurance premiums are more expensive than those for term life. But whole life also creates cash value. A portion of the premiums is invested and grows in value. Policyholders can tap this cash value for needs such as college expenses or retirement.

Whole life insurance can be a good option if you want the peace of mind of knowing you will always have access to coverage. This is particularly true if you have a family history of chronic or serious illness. Whole life insurance can also make sense if you want a simple investment option that provides cash for the future.

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