Life insurance can be simple or confusing, and this has totally got to do with the types of requirements you have. When opting for life insurance, many people often face confusion of choosing between term life and whole life insurance.
While these two types of life insurance share a couple of similarities, they have several differences between as well. If you are new to choosing life insurance and want to get clarity with these types of insurance, this blog post should be an ideal place for you to start.
Which is better: term life or whole life insurance?
Many people, especially those who are opting for life insurance for the first time, often have the confusion as to which is better between term life and whole life insurance. To say one is better than the other in general aspects wouldn’t do justice to both insurance types.
This is because both insurances offer great benefits and are unique in their own right. In most cases, critical factors considered to choose between term life and whole life insurance are often the cost and policy.
In terms of cost, term life has lesser pricing than whole life insurance. The less cost of term life insurance mainly has got to do with its tenure which can be limited to up to 30 years. On the other hand, the tenure of whole life insurance can last for a lifetime (as the name of the insurance itself suggests).
In terms of the policy, both insurance types have their own sets of benefits. Term life insurance is designed to offer death benefits only. The insurance policy pays out only on the event of the premature demise of the policyholder within the policy tenure. If the policy tenure comes to an end, the policyholder has to renew the insurance in order to avail the policy benefits.
Term life insurance is the right life insurance choice for you if you are the only earning member of your family and want to ensure financial protection for your family members. The insurance also comes as the right choice if you want to stick to a limited budget for paying the policy premiums.
Whole life insurance differentiates itself form term life insurance with its life-long policy tenure. This essentially means that the policy holder doesn’t have to go through the hassle of renewing the policy tenure after a specific period of time.
Also, whole life insurance includes cash value accumulation apart from offering death benefits. Policyholders can redeem the cash value accumulation that builds during the active time period of the policy. However, it’s important to note that it takes quite a time (10 to 15 years) to build a good cash value.
You cannot go wrong with whole life insurance if you want your life insurance policy to have extensive coverage. This life insurance types also comes as the right choice for estate planning.
Term vs whole life insurance pros and cons
Here’s a brief comparison of the pros and cons of both life insurance types to help you get more clarity and make an informed decision.
Term life insurance
- Offers death benefits
- Premium prices are lower
- Can be converted to whole life insurance
- Can be used in addition to permanent life insurance
- Doesn’t include cash value accumulation benefits
- Policy tenure is limited
- The policy pays out only within the tenure and on the event of death
- The policy must be renewed for extended coverage
Whole life insurance
- Offers death benefits
- Includes cash value accumulation benefits
- Policy covers for the entire lifetime
- Accumulated cash value is redeemable during the policy tenure
- Premium prices are higher
- The cash value can take a minimum of 10 years to build up
- A health examination is necessary for eligibility
- The worth of ROI (return on investment) determines cash value
Your age is a major factor to consider in order to choose the right life insurance between the two. If you are planning to opt for life insurance at a young age, e.g. 25, whole life insurance is well-suited for you as you’ve got plenty of time in your hands to build cash value. On the other hand, if you are in a middle-age, e.g. 35, you’ll benefit the most from term life insurance.