Types of Insurance: Whole Life vs. Term Life

There are two basic types of life insurance: term life and whole life. Term life provides protection for a defined period of time and is often regarded as the most affordable type of insurance. Whole life (sometimes known as permanent, universal or variable) is priced to provide lifelong protection.
Term life insurance
Terms policies provide a guaranteed level premium usually ranging from ten to thirty years, as such periods, typically cover the need for temporary protection. If you die while your policy is in effect and all of the required premiums (guaranteed not to increase over the term of the policy) had been paid, your beneficiaries receive exactly the benefit amount you selected.
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Whole life insurance (Universal life)
Whole life is also known as ordinary, standard or permanent insurance. Unlike term, whole life provides coverage for your lifetime. Whole life policies also provide tax-deferred buildup of cash value, payable upon surrender or payment default.

Generally, permanent insurance has fixed premiums and death benefits. There are other types of permanent coverage, such as graded premium life, universal life, and variable life offer variable premiums and death benefits.
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You may be contemplating the purchase of a policy, but you are confused about the differences between the two major policy types to consider: term vs. whole. Read our guide to learn more about the distinctions between the two types of insurance, the benefits of each, and which one might suit you and your lifestyle better. In simple terms, the difference between whole and term is how long it provides protection.

Whole life policies provide lifelong protection, whereas term life Insurance provides coverage for a given period. Whole life covers you for as long as you live and continue to make timely premium payments. In addition these policies have a feature known as "cash value" or "cash surrender value" not found in term life policies. Whole life policies builds cash value, which is a return on a portion of your policy. A rule of thumb to determine which insurance is better is if you intend to keep your life insurance policy for the long term, usually 15 years or longer. If your intentions are long term, then whole life is the better life insurance option for you.
Term vs. Whole Life Insurance Explained
  • Term life is the most affordable insurance.
  • Term life is the simplest form of coverage to secure.
  • Term life premium is guaranteed to remain the same for a set amount of years.
  • You can purchase additional benefits through riders.
The Disadvantages of Term Life:
  • Eventually, there will be increasing premiums.
  • It requires re-qualification by passing a new medical exam.
  • Term life costs will ultimately become very expensive.
Advantages of Whole Life:
  • The policy's cash value can be converted into cash or an annuity. The guaranteed cash values can provide money at a later time and help with temporary needs or emergencies.
  • A provision or rider can be added to a policy that gives you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.
  • With level premiums and the accumulation of cash values, whole life insurance is an excellent choice for long-range goals.
The Disadvantages of Whole Life:
  • Required premium levels may make it hard to buy enough protection.
  • Premiums are higher than those for term insurance.
  • Coverage may cost more during the early years of coverage when the need for protection is often greatest.
  • It costs more to cover needs that will disappear in time, such as mortgages or family income needs for children.
There are several different types of whole life coverage to consider
Whole Life Insurance:
- Provides a lifetime guaranteed death benefit, a guaranteed fixed premium, and guaranteed cash values.
- Excess earnings of the insurance company are credited to your cash value either as dividends or as excess interest.
- Your cash values can be used to pay future premiums, fund retirement and college education and provide emergency cash reserves.
- Typically provides the best investment rate of return per dollar of premium.
- Perfect for those who want guaranteed permanent coverage with a guaranteed premium for the rest of their life.
Universal or Adjustable Life:
- A flexible, permanent product that allows policy holders to design their own plan.
- You can adjust your premiums from year to year, increase or decrease your death benefit and still accumulate savings with tax advantages.
- An ideal policy for first time buyers that are budget minded with young families and changing needs.
- It is often used as a low cost, level premium alternative to term insurance when coverage is needed for many years.
- Universal life provides a guaranteed death benefit with a low, level premium.
Survivor Life Insurance (Second-to-Die):
- This plan covers two lives, typically spouses or business partners.
- Plans are designed to provide cash to cover estate taxes or business liability, to be paid after both people have died.
- The survivor plan premium is less than if individual coverage was purchased on each life.
- Plans can be based on either whole life or universal life coverage.