The Major Differences Between Term And Whole Life Insurance

Whole life insurance implies what its name says—it is insurance coverage for the duration of one’s life. Term life insurance also implies what its name says—it is insurance coverage that is only valid for a certain period of time as outlined in the policy.

This brings us to the biggest difference between term life insurance and whole life insurance—the period for which the insurance policy is valid, either for a term or for your whole life.

The price of whole life insurance and term life insurance are also very different. Term life has a definite structure, from beginning to end for a certain number of years, usually from one to 30 years. Because of this structure, it usually means term life insurance is quite a bit less expensive than whole life insurance. Whole life insurance will eventually pay out—we all die eventually, but term life maintains some mystery and risk—it only pays out if you die within the time the policy is valid. This means that the insurance company has a likelihood of taking your premium payments and never having to pay out anything on the insurance policy.

One of the other important differences between whole life insurance and term life insurance is at the end of the insurance policy, whole life policy holders have access to some of the money they have essentially ‘saved’ later in life whereas at the end of a term life insurance policy, the insured has nothing. This also reflects on the price difference between the two types of policies—whole life insurance policy prices reflect these abilities to ‘take money from the savings’ of the policy.

Making a decision between the two different types of insurance policies can not always be an easy decision to make. The primary question you must ask yourself is why you need insurance in the first place.

Only approximately two percent of term life insurance policies pay out their death benefits, making term life insurance a lucrative deal for the insurance companies out there. This means that most of the time, they just collect insurance premiums from the insured people and never pay out the death benefit. These types of short term life insurance policies are much less expensive at the get-go and tend to get more and more expensive as time passes. Most people drop the term life insurance when the premiums get too high, again decreasing the risk of the insurance company paying out the death benefit.

Whole life insurance provides coverage regardless—we all die eventually and the insurance company will inevitably pay out the death benefit. Whole life insurance policies are much more expensive than term life for this simple fact alone. Also, because of the way whole life insurance policies work, the premiums go down as time goes on and are more expensive at the outset.