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Term vs. Whole life insurance

Term life insurance is more affordable and easier to understand than whole life insurance, but it will expire at the end of the term

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term vs. whole life insurance

People who want to consider buying life insurance face some challenges regarding what type of policy to get. One of the most important decisions is whether to opt for term life or whole life insurance . If you have the same dilemma deciding on term vs. whole life insurance, then read on to learn the differences between the two, like cash value.

What is Term life insurance

Making the decision on buying term vs. whole life insurance is tricky, we will disscuss them in further detail. Term Life Insurance is one of the most in-demand types of life insurance because it is very affordable. People with low income can even afford it to secure their family’s future. It is available for a specific timeframe, like 10, 20, or 30 years.

Typically, it is for single and married couples who want to secure the future of their children. In case parents died while children are still in school, there is peace of mind knowing that children can continue studying because of the death benefit.

Parents can choose a timeframe that can last until their children finish school and reach adult age. The parents can also use the death benefits to secure payment for a mortgage if something terrible happens.

However, term life is not only for married couples with children. For married couples without children, it is still wise to purchase term life. The reason for buying term life, even if there are no children, is a retirement fund.

It is a great way to secure your future right before you both reach your retirement age. This type of insurance is suitable if you have a goal in mind. It is also better to take advantage of the opportunity to buy for cheaper rates while you are still a young couple.

What is Whole life insurance

Whole life insurance promises to stay with you during your entire life. Unlike with term life, the policy has no end date. The policy is in effect as long as you pay for premiums. The company will only cancel the policy if you fail to do your duty as a policyholder, which is to pay.

Moreover, unlike term life, whole life insurance provides a growing cash value that you can withdraw and loan in the future. Cash value is available for you in different ways depending on the insurer’s policy. One can take it as a loan or use the money earned from the cash value to pay for premiums.

What type of life insurance is best for you

When it comes to less hassle and peace of mind, whole life sounds like a great choice. It offers lesser headache to the policyholder because it will not expire. Also, one should not worry about re-applying for the policy after 10 or 20 years. It is true, but the comfort and benefits of whole life come with a high cost.

Below, let’s see if the two types of life insurance are worth the extra cost.

Term vs. Whole life insurance: Cost Comparison

Monthly price sample of whole life against 20-year term life policy

AGE

COVERAGE

TERM LIFE COST

WHOLE LIFE COST

20

$100,000

$12.78

$46.13

30

$100,000

$13.40

$67.52

40

$100,000

$17.81

$104.86

50

$100,000

$35.68

$161.60

60

$100,000

$91.20

$264.82

Sample rates are based on a healthy male living in Kentucky.

The above sample of rates shows a clear difference among term and whole life policy according to age. When comparing for a similar amount of coverage, you will notice that whole life is 3 to 4 times costlier than the term life.

After knowing the huge difference in pricing, it is now good to know why whole life is more expensive than its counterpart.

term vs. whole life comparison

Term vs. Whole Life Insurance: Picking the Right One For Me

One can purchase whole life at any age. After getting it, then you are insured for the remainder of your life unless you want to cancel the policy. It is given that whole life is expensive. However, the amount balances over the years. The following are scenarios that will further explain it in actual life situations.

First Example: Whole life insurance

A healthy man acquires a whole life policy for $100,000 at the age of 30. He will pay $67 a month for the premium for his entire life.

After 20 years, he is now 50 years old and paid a total of $16,080 premiums. He never misses any single payment during that period. After another 20 years, the 70-year-old man now paid $32,160 in premiums. Unfortunately, he died after 20 years at the age of 90. His total premium paid was $48,240, but his beneficiaries will receive $100,000 face value of the policy.

Second Example: Term life insurance

A man in his 30 acquires $100,000 term life insurance with 20 years term for a $12 monthly premium.

After 20 years, he already paid a total premium of $2,880, but since it is a 20-year policy, then it ended. The man still wants 20-year coverage, so he re-applies for another 20-year term. During that time, he even in a healthy condition and does not smoke. The man will get approval for another 20-year term for a $35 monthly premium.

Another 20 years have passed. The man is now 70 years old and paid a total of $2,880 + $8,400 premiums. Now, he is again without coverage. The man now does not qualify for term life insurance. Therefore, he is left with very few options like the final expense policy, a type of whole life plan that is more expensive. Now, the $20,000 policy has a monthly premium rate of $148.

He died at the age of 90, and the final expense policy has cost him $35,520, but his beneficiaries will only get $20,000.

Term vs. Whole life insurance Case Summary

In case the man acquired his whole life while he is still in his 30 and paid for premiums up to 90 years old, he only spent a total of $48,240 for his life insurance. By the time of his death, his beneficiaries will get a $100,000 death benefit. It does not include the money from the cash value as part of the whole life policy feature. The cash value earned from the policy may be used to pay for premiums.

In the case of term life, the man acquired term life in his 30 and renewed the term after 20 years and applied again for final expense has a total premium paid of $46,800, but his beneficiaries will only get $20,000 death benefit in the end.

However, if the man died at the age of 49, he paid a total premium of $15,276 for his whole life and $2,736 for term life, but both scenarios will give his beneficiaries a $100,000 death benefit.

Whole life insurance has cash value, term life insurance don't

After reading the above scenarios, we learned that whole life could be expensive in the short term but very affordable in the long term. It is not the only benefit that one can get out of this type of policy. Mostly, whole life has a cash value feature similar to an investment.

 The cash value’s interest rate depends on the insurer, so it is essential to compare first. Most insurance providers offer an interest rate of 2 to 3 percent. Aside from that, it will increase once the company portfolio soars high and gains more value.

Term vs. Whole life insurance: Which is best

The following are factors that may influence your decision to what type of policy suits you best, term life or whole life.

Want a lifetime Policy: Whole Life Insurance

Based on the above scenarios, we can say that whole life is a wise investment and security blanket. It is the best option for those aiming for lifetime coverage.

However, term life is an option if there is a rider that lets you re-apply for the term after the expiration date. At a certain age, one cannot qualify for term life, and then that will leave him/her with costly options like final expense or guaranteed issue.

Serious Health Issues: Whole Life Insurance

There are different types of whole life coverage available depending on your current health condition. Some may not have a cash value feature and costs more. However, if you have severe health issues like cancer or diabetes, then you may only qualify for a more expensive type of whole life, like the guaranteed issue.

Affordable Life Plan: Term Life Insurance

If permanent coverage is not something that you are aiming for, term life might suit you best. Term policy is cheaper than whole life. Term life costs are 4 to 5 times lower than whole life insurance with similar coverage.

A life plan when you need it most: Term Life Insurance

Many people only view life insurance policy as necessary during a specific stage of their life. For instance, if you are a newly married couple, getting term life will protect your family from unforeseen events. It will give your spouse and children protection against financial burden if something tragic happens to you. Once your kids mature and finish their studies, your death will have a negligible impact on the family financially.

How much life insurance do I need

Life Insurance Need Calculator
This calculator will help you to decide how much life insurance you need if your survivors invest the life insurance benefits they receive.

Funeral cost, estate taxes, etc. ($):
Amount needed to pay off non-mortgage debt ($):
Amount needed in emergency fund ($):
Amount needed in college fund ($):
Expected average annual living expenses ($):
Expected spouse's average annual income after taxes ($):
Annual Social Security Benefits ($):
Spouse's current age (#):
Value of current liquid assets ($ total of savings, investments, etc.):
Expected survivor's investment strategy:
Life insurance needs:

Life insurance calculator

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About Coach B.

After starting his financial career with Phoenix Home Life Insurance Company back in 1992, Scott decided he wanted to provide people with an easier and more enjoyable way to buy life insurance. That was the start of Coach B. Life Insurance, whose mission is to be transparent, honest, and helpful to customers — without ever bugging or pushing them.

In the years since then, he has worked tirelessly to improve the process of shopping for insurance. His goal is to make sure that everyone who comes to Coach B. — whether they end up buying a policy or not — has the best possible experience.

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