Term Life vs. Whole Life Insurance Simplified (2024)

FAQs

Term Life vs. Whole Life Insurance Simplified? ›

Choosing between term and whole life insurance comes down to how long you want coverage and how much you can afford. Term life is more affordable but lasts only for a set period of time. On the other hand, whole life insurance tends to have higher premiums but never expires.

While there are many whole life insurance benefits, there are some drawbacks—like higher premiums (compared to term life insurance), lack of flexibility, slower growth and potential penalties.

Level premium: Also called level term; this is the simplest, most common type of policy: Your premium stays the same for the entire term. Yearly renewable term : Also called an annual renewable term.

Term life insurance is cheaper than whole life and covers you for a set period of time. Whole life insurance typically lasts your entire life and can build cash value, which makes it a more complex and expensive product.

Although term life insurance might make sense for younger seniors who only want short-term coverage—for instance, until their homes are paid off—whole life insurance may be a better fit for a senior's financial plan. A financial advisor can recommend the best policy for your needs.

For every $100 you invest in whole life insurance, the first $5 goes to purchasing the insurance itself; the other $95 goes to the cash value buildup from your investment, Ramsey says. But for about the first three years, your money goes to fees alone. Someone is making out, and it's not your beneficiary.

Cons of Whole Life Insurance

Whole life is more expensive than term life, and you will receive a lower death benefit than you could get with the same amount of money with a term policy.

With a cash value life insurance policy, like whole life or universal life insurance, you can access the cash value. One of the ways to do that is to cash out or surrender the policy. If you choose to cash out your policy, you'll receive the cash value minus any surrender fees.

Can you cash out term life insurance? Since a term life insurance policy doesn't come with a cash value component, it's not possible to cash it out. This policy solely includes a death benefit that your beneficiaries may receive if you die before the end of the policy's term.

When your term life insurance plan expires, the policy's coverage ends, and you stop paying premiums. Therefore, if you pass away after the policy ends, your beneficiaries will not be eligible to receive a death benefit.

At what age should you stop whole life insurance? ›

You may no longer need life insurance once you've hit your 60s or 70s. If you're living on a fixed income, cutting the expense could give your budget some breathing room. Make sure to discuss your needs with an insurance agent or a financial advisor before making any major moves.

A unit of Colonial Penn coverage is the life insurance benefit amount you receive for $9.95 per month. Your age and gender determine the exact amount of insurance coverage a single unit provides. The older you are, the more units you will need to purchase in order to get an adequate death benefit.

Life insurance is no longer needed for many people once they reach their 60s or 70s. At this point they retire, their kids have grown up, and they've paid off their mortgage and other debts. However, others prefer to keep life insurance later in life to leave an inheritance and to pay off final expenses.

A financial advisor who makes a living through commissions has a strong financial incentive to include life insurance, as some insurance companies pay rather well for selling their products.

30 to 60 years old

Whole life or universal life policies, if you can afford permanent coverage, can provide more financial security for your loved ones. But if you have a lot of debt, you may opt for a high-value term life insurance policy until the debt is paid down.

Generally, you can withdraw a limited amount of cash from your whole life insurance policy. In fact, a whole life insurance cash-value withdrawal up to your policy basis, which is the amount of premiums you've paid into the policy, is typically non-taxable.

Some of the top reasons for a claim to be denied include fraud, high-risk activities, suicide clauses, policy expiration and the possibility of beneficiaries' involvement in the insured's death.