Types of Insurance: Term Life vs. Whole Life

Not all life insurance policies work in the same way. In fact, there are many differences between the different types of life insurance plans. One of the most common questions we answer at IntelliQuote® is about the differences between term life insurance and whole life insurance. Let’s start with the basics:

Whole Life Insurance vs. Term Life Insurance

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 and may be a more expensive option.

Term Life Insurance Explained

Term policies provide a guaranteed level premium for coverage that usually ranges from ten to thirty years and typically cover the need for temporary financial 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) have been paid, your beneficiaries receive the benefit amount you selected.

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Whole Life Insurance Explained

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 a tax-deferred buildup of cash value, payable upon the death of the policyholder, surrender of the policy 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 that offer variable premiums and death benefits.

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Comparing the Different Types of Life Insurance: Advantages and Disadvantages

The Advantages of Term Life Insurance:
  • Term life insurance offers a high level of coverage for the most affordable price.
  • Term life policy premiums are fixed for the life of the policy.
  • Term life insurance is easy to understand and has a simple enrollment process.
  • Policies can be customized with riders to add additional benefits.
The Disadvantages of Term Life Insurance:
  • Deciding up front how many years do you need to provide protection for your family. Premiums cost more the older you get soif you need to extend your coverage beyond the term of your existing policy later in life the insurance premiums will be much higher.
  • Policies only last for a fixed term, if you'd like to extend your coverage you may need to reapply and retake the medical exam.
  • As term life policies can be more expensive later in life, whole life may be a better option for people over 50.
The Advantages of Whole Life Insurance:
  • Policies build a cash value in addition to the death benefit. The cash value can be used to pay for premiums, borrowed from to cover unexpected expenses, or help with paying for retirement expenses.
  • Riders can be added to the policy. Riders allow coverage to be increased without the need for additional medical tests.
  • The growing cash value and fixed premiums can make whole life policies an excellent choice for predictable long-term financial planning goals.
The Disadvantages of Whole Life Insurance:
  • Coverage can be expensive, which can make large coverage sums very costly.
  • Premiums cost more than term life insurance premiums.
  • 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.
Whole Life Vs. Term: There Are a Few Different Life Insurance Types To Consider:
Term Life Insurance:
- Provides fixed length coverage for terms between 10 and 30 years.
- Offers affordable plans.
- High coverage amounts available.
Whole Life Insurance:
- Provides coverage for life.
- Builds a cash value in addition to the death benefit.
- Gives a guaranteed death benefit payment.
Universal or Adjustable Life:
- A more flexible whole life plan.
- Coverage and premiums can be adjusted each year to meet you family’s needs.
- A good alternative option to term plans for the budget conscious looking for life-long coverage.
- A joint policy that provides life insurance for two people on the same policy.
- Pays out the death benefit to the surviving policyholder when one of the insured passes away.
- More affordable than buying two separate plans.
Survivor Life Insurance (Second-to-Die):
- Like first-to-die plans, this whole life option covers two people.
- Plans do not pay out until both policyholders pass away.
- Cheaper than buying two individual plans.
- Plans can be based on either whole life or universal life coverage.

Term Vs. Whole Life Insurance: Choosing The Right Type Of Plan

One of the most important decisions when finding life insurance is choosing between term life and whole life insurance. Understanding your needs is an important part of determining which coverage option is right for you and your family.

  • When to Choose a Whole Life Plan:

    As whole life insurance lasts for life, people often choose whole life plans when they want to leave a guaranteed payment to their family, whether this is for funeral expenses, to leave a legacy, or anything else they wish to provide for. As whole life coverage is generally more expensive than term life insurance, it is good for people who want a lower level of coverage that lasts for life. Whole life insurance is a popular choice for people looking to protect their family from end of life expenses or costs associated with their death such as estate tax. So if you have high coverage needs, you may want to consider a term policy.

  • When to Choose a Term Life Plan:

    Term life insurance is the most affordable form of life insurance. Many people use term plans to cover financial obligations that will only last for a fixed time. As the longest plan only lasts for up to 35 years, people generally use term policies to provide for costs with a defined end such as mortgage payments, childcare costs, college expenses, or debt. Term life insurance is very popular with young couples and families with children. This is because young people who are just starting out in life often have high levels of financial obligations that they would like to protect their family from in the event of their death.

Calculating Your Coverage Needs

Calculating your coverage needs is another key step in finding the right plan. To find out the coverage level you need to keep your family protected, you need to consider a number of areas:

  • Current lifestyle costs:

    If you’re looking for a life insurance plan to help your family maintain their current lifestyle if you were to pass away unexpectedly, there are a number of things to consider. For example, you may want to insure the main income earner to ensure that your family’s income would be replaced, at least for the short term. You can also consider adding coverage for large continued expenses in your life such as mortgage payments and childcare costs. You may also want to consider insuring the main childcare provider. Many people don’t realize just how expensive childcare is if a family member is unable to care for the children. Taking out insurance coverage to help cover these expenses can limit the financial implications of losing a main caregiver.

  • Future expenses:

    Future expenses can include anything that isn’t covered by your general day-to-day living expenses such as your children’s college education, retirement living for a spouse, end of life expenses, wedding funds, property down payments, and any other significant expenses you predict in your family’s future.

  • Estate planning:

    Life insurance is a key part of estate planning for many families, whether it’s providing a lump sum to help with estate taxes, to take advantage of tax benefits, leave a legacy to a loved one or charity, or help your spouse with living expenses during probate.

Your coverage needs are unique to you, so it’s important you work through your existing, future, and estate needs to develop a full understanding of the amount of coverage you need and how long you need it for. If you’d like help with these calculations, our online life insurance calculator makes calculating your coverage needs quick and easy.

Term Vs. Whole Life Insurance: Finding the Right Type of Life Insurance Plan

Finding the right insurance plan is easy with IntelliQuote’s simple online quoting platform. We provide quotes for both term and whole life plans, helping you understand the coverage options available. We work with the highest rated insurers to ensure that you get the best coverage available. Start your application online today or call our licensed insurance agents if you’d like to discuss your coverage needs with an expert.