How Are Term and Whole Life Insurance Different?

Written By: Allen Nolan on January 2, 2010 No Comment

Indeed, there’s a difference between whole life and term insurance, but what is it ? And why? Because one is good for some situations where the other one isn’t, as well as the opposite. Knowing the differences lets you choose what’s best for you, and gives you peace of mind.

Term Life Insurance — How Does it Work?

Term is one of the most affordable types of life insurance policies that you can get. It is frequently used in case you die in a predetermined amount of time (typically ten, fifteen or twenty years).

If your employment has a higher-than-average risk factor, or it you like to travel a lot, then term life insurance could be right for you. It does have an expiration date on it, hence the name “term”, and once it does expire, you will either need to renew (ordinarily at a higher rate) or purchase a different life insurance policy. Term is not the kind of policy you would get if you think you would die of natural causes.

How Does Whole Life Work?

Whole life is the kind of insurance policy which lasts for your full life, and is paid out at the time of your death.

There are two halves to such a policy of course; the death benefit, and the cash accrual.

So why are there 2 parts, and what is the difference?

The death benefit is always paid out; however the cash accrual part is basically cash storage, that gains interest. You pay above the actual cost of insurance, and this is put into an investment account, and you can in fact withdraw money. Also, you can obtain a loan against the investment. Or, just don’t touch it, and leave your beneficiaries additional money when you pass away.

A Summary of the Differences

As you can see, the differences between term and a whole life policy are relatively straightforward.

With term insurance, you are covered for a fixed length of time, and is usually used if you have a high risk job or hobbies. If this sounds like your lifestyle, then perhaps term life insurance is the right option for you.

Then again, if you anticipate living to an old age, then whole life is a much better choice in your situation.

One more thing to think about, there isn’t anything stopping you from getting both. If you have both types of insurance, you are more secure than if you only had a single kind. Plus the pay out is much higher with two policies than just one.

So maybe even think of buying both types; this may give you more peace of mind knowing you are really looking after your family even after you are gone.

Do You Have Enough Coverage? FREE Information!

If you pass away, who will take care of your family? Will they still have food on the table? Take a look at more free information about term and whole life insurance, and consider accident insurance, too (it’s really inexpensive).