Comparing Term Life vs. Whole Life Insurance


 Comparing Term Life vs. Whole Life Insurance

Premiums

Both level term life and whole life have level premiums. That means your premium payments won’t change and you’ll know exactly how much you’ll owe. Life insurance companies generally offer payment plan choices, such as monthly, quarterly, semi-annually, and annually. If lifelong bills for whole life insurance aren’t appealing, some policies offer shorter payment schedules with larger payments, such as single-premium whole life insurance, or policies with payments for a certain number of years, such as 10 years. This allows you to have more budget flexibility later in life.

Payouts

Whole life and term life policies have payouts, called death benefits, that are guaranteed and don’t change. A death benefit is generally paid tax-free to your beneficiaries. The main difference is that coverage ends with a term life policy if you don’t renew it every year after the level term period ends.

Cash value

Term life insurance builds no cash value. Whole life policies contain a cash value account that builds overtime at a fixed earnings rate. This guaranteed cash value growth is one of the reasons whole life insurance is considerably more expensive than term life. The policyholder can take money from the available cash value. You can take a loan against it and pay for anything you want. Or take out the money as a withdrawal that you won’t pay back. The outstanding loan or withdrawal amount is deducted from the death benefit if you die without paying it back. Any cash value remaining usually reverts to the insurance company when you pass away. Your beneficiaries receive the face value of the policy minus any amount that was taken out of cash value and not paid back. If you’re looking for lifelong coverage without the high cost that a whole life insurance policy demands consider guaranteed universal life insurance.

Ending a policy

While you do your best to anticipate financial needs many years down the road, you might find you no longer need life insurance. With term life insurance, you can stop paying and terminate the policy. Since there’s no cash value, there’s no money to walk away with. If you wish to end a whole life insurance policy, you can simply stop paying, but that is not the best tactic. The life insurer will likely use any cash value to continue paying the premiums on your behalf until the cash value is depleted. Instead of walking away, contact the insurer and take the surrender value, which is the cash value minus any surrender charge.

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