17 Simple Facts Term Life vs Whole Life Insurance
1.Term life insurance is simple to understand.
2.You choose a term and the premium is level for the entire initial term. After that, the premium increases for the next term. This premium increase is guaranteed and illustrated in the policy.
3.There is no cash value within a term policy. Once terminated, you lose the coverage and don’t get anything in return. That’s why it’s known as ‘pure life insurance‘.
4.Permanent life insurance is the opposite of term.
5.Whereas term covers short-term needs, permanent covers permanent needs.
One example of a temporary need consists of covering the time known as the “dependency period”.
This is the time period when a family depends on money from the income earner(s) to enjoy basic necessities such as food and shelter.
Typically, this period lasts until the youngest child is no longer dependent on his or her parents.
The family’s debt obligations, such as loans and mortgages, are often greatly reduced by this time as well. With the obligations toward dependents minimized, the necessity for life insurance to fund these specific needs is reduced or eliminated.
In terms of permanent needs, an example would be estate conservation.
After many years of accumulating assets, many people are still unaware of the fact that taxes may seriously reduce the value of their estate.
Upon the death of an individual, assets can move laterally which means that they can be transferred to a spouse free of tax implications.
On the death of the spouse however, the government deems all assets disposed of, thereby triggering tax.
6.Term has no cash value, but permanent does (most of the time).
7.Term is perfect for joint first-to-die insurance, while permanent is essential for joint last-to-die.
- Term insurance is often compared to renting, you do not generally gain any equity or premium, refunds with low priced term coverage.
- The actual number of term policies that pay a death benefit is very small, less than about 5% because these are often not held for long periods of time, or they have lapsed before the death benefit is payable.
- Many whole/Permanent life policies have the potential to build cash values or dividends, but not all.
- Premiums generally remain fixed for the duration of the policy, or until they reach what is referred to as ‘Paid Up’ status when no future premiums are required to keep coverage in force. It is important to know your policy provisions.
- Permanent/Whole is coverage for your whole life (because you are guaranteed to die at some point) and is like owning a home. More expensive than renting, but it becomes an asset that builds equity you can tap into and if structured right, can be a source of tax free retirement income that is guaranteed and not dependent on market conditions.
- Term life insurance is easier to understand and costs much less than whole life insurance, but it comes with an end date. A 30-year policy is typically the longest term available, depending on your age.
- Perm/Whole life insurance will last the rest of your life, so your beneficiaries are guaranteed a payout no matter when you die.
- Perm/Whole life insurance also builds up “cash value,” which is money you can access while you’re alive. Term life has no cash value.
- Both types of insurance provide life insurance protection and pay out for death claims made by beneficiaries. In cases where the policy term expires before the insured person dies, a claim would not be paid. There is lifelong financial protection with permanent life insurance, so beneficiaries will receive the death benefit as long as the policy was in force when the insured person passed away.
- Permanent/Whole life equals forever equals cash value. Term equals certain number of years equals no cash value.
Term Life Insurance Or Permanent Life Insurance?
So, which one is right for you?
To answer this question, you have to ask yourself why you are buying life insurance in the first place.
Not everyone needs life insurance (also known as life cover and death cover).
But if your children, partner or other relatives depend on your income to cover the mortgage or other living expenses, then the answer is yes – you probably do want life insurance, since it will help provide for your family in the event of your death.
It’s true that if you are planning to buy insurance and hold it until you die, then the permanent policy gives you more cost certainty.
Nobody says you must pick one over the other.
If you have both a temporary and a permanent need, then you should get both types of insurance.
As attractive as term insurance might be due to the lower cost, it’s important to realize that most insurance needs will require permanent coverage.
Whole Life Insurance Quotes & Term Life Insurance Quotes
Mintco Financial was founded to give clear, honest personal insurance consulting.
Our focus on life insurance and income planning makes us unique.
We also consult on a clients whole insurance picture to find the best value for the least money.
The whole process starts with a personal interview to discover your own individual insurance needs.
Information is gathered about things like your current insurance, and future plans.
We are independent insurance agents that work for our clients to find the best solutions to their individual needs.
We take pride in our ability to bring the same objective viewpoint to serving our customers life insurance, long term care insurance, Medicare supplement insurance, and tax advantaged retirement planning needs.
We have the ability to compare insurance plans with you so that you receive the right coverage for your lifestyle and situation.
Contact us today for a free quote: