Whole Life Insurance vs. Term Life Insurance

Whole Life Insurance:

  • Known as permanent Insurance, because it can provide protection throughout your lifetime.
  • Whole life insurance policies have a living benefit and a tax sheltered cash account that builds up inside. 
  • Forces you to save.
  • Ability to access cash that has accumulated, in the form of loans and withdraws after a certain period of time.  (Cash can be accessed Tax Free. Either in the form of loans or you can withdraw funds up to the amount you have put into the policy via premiums tax free!)
  • Policy owners don’t pay taxes on the gains each year, and that money can be used in retirement to supplement their retirement planning.
  • Level premiums. (Payments stay the same & never increase throughout the entire policy.)
  • Whole life insurance policies have dividends. Dividends can be used to reduce the premium or to build up cash inside the policy and face amount.
  • Provides for business continuation. Permanent life insurance is typically a better solution than term for funding a business continuation plan. It ensures that the policy will be in force regardless of how long the business owner stays active in the business. Policy cash values may be available to fund a lifetime buyout or supplement an owner’s retirement.
  • Creditor Protection. (Some state statutes protect cash value from the claims of creditors.)
  • Cash Value Life Insurance is not a factor in determining eligibility for financial aid. As a general rule, policy cash value is not a factor used in determining eligibility for financial aid for college.
  • Beneficiaries receive death benefits tax free! (Same as term life insurance.)

Term Life Insurance:

  • Known as temporary insurance, because it only provides protection for specified number of years. (Example: 10, 20, 30 year terms are common options)
  • Term Life Insurance is very inexpensive.
  • Gives you the ability to buy a lot of death benefit for a low cost.
  • Generally term life insurance is meant for a temporary need or period of time. Since after the initial term lapses, you will need to buy a new policy. As we age, the premiums from the same coverage as your original policies will increase. So higher premiums at a later age with the same coverage can get expensive, especially depending on your health, etc. at that time. Also you run the risk of becoming uninsurable if your health significantly deteriorates by the time your original policy lapses. 
  • Term insurance can be converted to permanent insurance such as: whole life insurance (or universal life insurance) as long as it is done within the limits of the original term policy parameters.
  • Beneficiaries receive death benefits tax free! (Same as whole life insurance.)

Keep in mind one type life insurance doesn’t fit all. There are pros and cons for each. There are also advocates for both sides. Some permanent life insurance advocates will say that buying term life insurance is just renting security, while whole life provides lifetime security. Others on the other side claim that whole life insurance is too expensive and your additional money is better spent elsewhere. Note that part of the reason that term insurance can be obtained at a much lower cost than a permanent policy is because a term policy is designed to provide only a temporary duration of protection for a temporary need and also doesn’t build any cash value. So with "term” policies, the original term length (number of years the policy is set up for), can expire before people die. If that happens the insurance company gets to keep all the premiums paid over the years and doesn’t have to pay out any death benefit and also there is no cash value for the policy owner to pull out.

Whole life is typically the most expensive type of life insurance due to the fact that not only do you accumulate cash value, but also eventually the life insurance company will have to pay the beneficiaries the death benefit.

So some folks who need more death benefit for specified period of time may opt for term insurance due to their budget. Others may want a more permanent solution and build cash value. Some folks like a combination of both! The main important concept is to get some type of life insurance now, and you can add to it later on, or replace it with another type, as long as you are in good health.

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Note: Life Insurance information can be confusing to many people. As an "independent licensed agent" I can explain things to you in simple terms so you feel comfortable making a decision. Then I can help you choose a life insurance policy, from many choices of different insurance companies, that you feel fits your needs. Plus if you choose to work with me you will have personalized service by a local agent that can shop premium quotes for you. If you would like my assistance to discuss and/or start the process of getting you insured please call me at 941-404-5334. 

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