Term Life vs. Whole Life Insurance – The Pros and Cons
Reader’s Question:
Which type of policy should I go to? Should I buy a term life insurance policy or a whole life insurance policy?
Tyler
Clarksville, TN
This is a good question. A simple way to answer this is to determine what kind of life insurance coverage suits your needs as well as that of your family/dependents (beneficiaries). First, let’s take a look at the difference of a term life insurance versus whole life insurance:
Term Life Insurance
Pros: Provides significant face amount (death coverage or protection) for relatively affordable life insurance premiums. You can choose between 5, 10, 15, 20, up to 30-year life insurance terms depending on your needs. Term life is rarely offers anything else other than pure life coverage. This is great for people who only need coverage for a certain period of time (e.g. raising children or paying-off mortgage).
Cons: Can be very expensive to renew especially for longer term policies. It will depend on the particular life insurer if they will allow you to renew a term policy. Also, term life does not accumulate value in the long-run since there is no cash-value feature present.
Whole Life Insurance
Pros: Provides permanent life coverage that also offers comprehensive coverage features like cash-value. Cash-value accumulates wealth in the long-run and can even earn tax-deferred income. The owner may also borrow from the cash-value or liquidate the policy for its surrender value.
Cons: Definitely more expensive compared to term life but only because a portion of your premiums go into cash-value. Expect to pay expensive premiums in the initial years of the coverage. This is also not the best option if you’re looking to grow your money through investing.
The Verdict
Each kind of coverage has their own advantages and pitfalls so choose the policy that best suits your needs, your financial capacity and goals, and how long you see yourself needing life coverage.
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