Term Life Insurance or Whole Life Insurance – Which Is Better?

Meta: The two most popular forms of life insurance are term life insurance and whole life insurance, which are going to be explored in this post.

Introduction

It goes without saying that purchasing life insurance can provide a firm financial backup for your dependents upon your death. This proves even more significant if you are the sole breadwinner of the whole family. With life insurance in hand, we are free from dwelling on the future of our beloved ones once that worst-case scenario happens.

However, when it comes to types of life insurance, there are so many options for you to choose from, which may cause difficulties sometimes. Therefore, it is important to weigh up the pros and cons of each type to opt out the best catering to your individual needs. The two most popular forms of life insurance are term life insurance and whole life insurance. We’re going to explore them in details as follows.

Term Life Insurance

Definition

Term life insurance, also known as “pure life insurance”, is a kind of life insurance that provides coverage for a specific and limited time period based on policyholders’ choices. It is designed to provide financial support for your dependents in the event of your premature death. Your beneficiaries are eligible for the death benefit if reports of death are made within the policy term. This is the only value of requesting this type of life insurance. Once the policy is expired, the insurer has no obligations to you.
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The term period has to be chosen at the same time with buying the policy. Most terms last from 10 to 30 years. In most cases, the death benefit and premium remain unchanged within the policy period.

Benefits

  1. 1. Cheap: Term life insurance is the least costly among other kinds of insurance. This is due to the fact that you only have to make contributions to a fixed amount of cash benefit which your heirs will come into if you pass away.
  2. 2. Otherwise, you are under no obligation to pay outside costs concerning that the insurance company doesn’t intend to earn any interest on your payout
  3. 3. Therefore, term life insurance is rather affordable and can cater to the financial background of any individual, particularly the young who are seeking low premiums.
  4. 4. Simple: Term life insurance is uncomplicated with policies easy to follow. Hence, there exist no threats of hidden fees or exclusions.
  5. 5. Flexible: A term policy is subject to cancellation before its expiry date at the policyholders’ ease without any value loss.

Drawbacks

  1. 1. Temporary: The policy only lasts for a short term, so its expiry marks the end of your coverage. Your beneficiaries can’t receive any death benefit if you are still living to the end of the period. In case you want to file for a contract renewal, it costs you higher premiums.
  2. 2. It is sometimes feasible to transfer from a term life to a whole life policy, but it’s up to your insurance provider’s conditions.
  3. 3. Unfixed: The premiums will go up at fixed intervals, especially on the basis of your health conditions.

Whole Life Insurance

Definition

On contrary to term life, whole life insurance is a type of life-long insurance. Provided that you pay premiums on due dates, life insurance is still in effect.
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It also includes cash value which grows slowly over the time and is exempt from tax. You won’t get the tax deducted from your gains. In other words, the proceeds are given tax-free to your remainders in case of your departure.

Benefits

  1. Permanent: There is nothing called expiry date for whole life insurance, so no need to bother about when your safety net is deprived, which perfectly guarantees your death benefit.
  2. Fixed: The premiums are set right from the start during the whole period. Even if you are getting older or diagnosed with serious health problems, you won’t risk yourself being charged more.
  3. Profitable: Investment in whole life insurance can be considered an absolute bargain. Cash value can be put to many good uses, including taking out loans, funding the policy or withdrawing for retirement savings and in emergency cases.
- As for several whole life policies, you can even earn annual dividends as parts of the insurer’s financial surplus. One special plus point about this is that dividends on whole life are totally tax-free.
- Besides, these dividends are available for withdrawal in cash or earning interests if left on deposit. Moreover, they can be deployed to decrease premiums, repay policy loans and purchase further coverage.

Drawbacks

  1. 1. Costly: The premium for whole life insurance is much more expensive, up to 4 times as much as that of term life insurance. Therefore, you may well buy less coverage than actual needs and end up dropping the policy early.
  2. 2. Not highly profitable: Compared to other investment options, you are likely to get fewer benefits because cash value is offered at a minimum growth rate.

Factors to Consider When Choosing Life Insurance

Your Age and Current Health Condition

If you are considering a term life insurance during your 30s or 40s, perhaps by the time it expires, you are still living healthy and the insurance doesn’t count much.
If you just think of a life insurance after your retirement when your children are fully grown up, it stands to reason to buy a term one just for final expenses.

Your Specific Demands

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Ask yourself whether you buy life insurance to only provide death benefits as a standby fund for your beloved ones or putting money in store for your children as inheritances. Term life insurance is fit for satisfying momentary demands namely maintaining mortgage balances and paying children’s college tuition. As for many long-term benefits, including high-cost items’ purchase, additional retirement income and generous legacies spared for offspring, whole life insurance turns out a much more sensible choice.

Financial Status

It consists of your outstanding debts or estate value and your ability to afford a small but gradually increasing premium or a large but stable one. For young people, who are stretching their budgets every day, this issue requires even more attention.

Besides taking out a portion of income to pay the insurance, you have to cover daily living expenses and having dependents to look after. Therefore, regarding comparatively high premiums, the obtaining of whole life insurance seems infeasible at first.

So, Which One Should Be Your Choice?

Generally speaking, there is nothing called ideal for people of all kinds concerning the above-mentioned advantages and disadvantages of each type. Taking out a life insurance is a highly personalized choice, so you might want to mull over your motivations to get life insurance and what you ask for when doing so.

Below are several recommendations you can refer to as making up your mind.

Term life insurance might be considered a top priority if you:

  • *Look for maximum insurance coverage with the lowest price range for a certain duration.
  • *Have to tighten your belt on a daily basis but still desire to provide financial backup for your beloved ones in the future without your presence.
  • *Want to cover financial responsibilities such as mortgage payments and college tuition.
  • *Have a financial obligation end by a specific date in the future.
  • *For example, your mortgage is due in 10 years’ time and by then, your children will have graduated from the university. As a result, you just need a term life policy for a period of a decade.

Whole life insurance is worth a think in case you want to:

  • *Seek lifelong protection and guaranteed death benefits for your dependents whenever you pass away.
  • *For example, when you are diagnosed with a serious disease, you may encounter with the fear of “un-insurability” for your beloved family at any time. Hence, you can make sure they are perfectly insured without intervals.
  • *Build up tax-deferred savings and cash value for later uses.
  • *Pay yearly premiums that remain unchanged over the time.

Useful Tips When Buying Life Insurance

Arrange an appointment with either licensed life insurers or financial planner for an elaborate explanation for the pros and cons of each type of insurance.
Take into account all of your backgrounds, social status and private needs to opt for the one of both economical and practical values.

As for a term life insurance: choose a term that life insurance coverage can come in handy in case of your early death and buy an amount of premium tailored to your family wishes.
In some cases, you can buy both whole life and term life policies for additional protection or making guaranteed investments.

The majority of term life policies are suited for conversion to permanent coverage. As a result, although you may find permanent life insurance more essential and your current conditions can only bear the cost of a term one, you can change to a whole life one later on.

Conclusion

Now that you get the hang of both common types of life insurance and the final decision is yours. Make sure you take every detail of each policy into serious consideration so that your life can be properly insured and your beloved family members are well taken care of once you have passed away.


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