Term vs. whole life insurance: What’s the difference?

Highlights:

Term Life Insurance:

  • Coverage for a specific term (ranging from as little as 1 year to 30 years)
  • Typically provides no cash value but offers a substantially lower premium
  • Most often purchased for mortgage protection, final expenses, and income replacement

Permanent (Whole Life):

  • Designed to provide coverage over an individual’s entire life
  • Builds cash value and can provide for income after retirement
  • Most often purchased for estate planning, emergency funds from cash accumulation, etc

The basic decision is figuring out whether to purchase term or whole life insurance. In order to make the best selection ask yourself the following questions: How much can I afford? What is the value of my estate…will I be subject to estate tax? What do I want to leave behind to my dependents? Who would be most impacted by my untimely death? Experts at SimpleLife are here to help you answer these questions and many more!

What is Term Life insurance?

As noted in the highlights, Term insurance is the most affordable option and is generally five to 10 times cheaper than its permanent counterpart. Term Coverage can provide protection in yearly increments often 10, 15, 20 or 30-year terms being extremely cost-effective while providing significant relief to your loved ones in the form of a death benefit from as little as 50,000 to face amounts as large at 5,000,000.  

With term life insurance, premiums are generally paid on a monthly, semi-annual or annual basis and provide protection for the length of the term stated in your policy. Term life policies are fairly cheap for younger/healthier individuals and get more expensive for older ages and folks with significant medical impairments such as diabetes, coronary artery disease, and cerebrovascular disorders to name a few.

Term insurance is a straightforward, more simple form of life insurance. Term coverage provides peace of mind that your loved ones won’t be burdened by debt in the event of your untimely death over the length of the policy. Term insurance can be an excellent option for mortgage protection, debt/creditor coverage, business insurance (key-man, buy/sell), and collateral for SBA loans and other business ventures.

 If you’re looking for low-cost life insurance to protect your loved ones, term insurance may be best for you and SimpleLife has you covered!  Now we move on to Whole Life Insurance…

What is Permanent (Whole Life) Insurance?

Three types: traditional, variable and universal whole life policies. 

Traditional: provides insurance coverage for the contract holder’s entire life with a guaranteed death benefit

Variable: permanent insurance with a guaranteed death benefit and investment options without a guaranteed cash value and level premiums

Universal: permanent insurance with a guaranteed death benefit and a cash value protected from unusual market risks with variable premium options

Whole Life, as can be surmised by its name, provides coverage for your entire life as long as premiums continue to be paid. Whole Life accumulates a cash value that can be accessed during your life subject to policy provisions. Essentially this means that as you make premium payments, some of these payments are available for you to cash out or borrow against for any reason. Your payments are deposited into a cash-value account minus plan cost(s) and other expenses.

Unlike term coverage, whole life can provide for guaranteed income post-retirement. The cash value accumulates on a tax-deferred basis and often allows for tax-free withdrawals when strictly adhering to guidelines.  

Whole life policies are far more expensive due in part to the cash value component. Whole life policies are generally thought of to be owned by the insured party as opposed to rented like term policies.

If you are looking for long term retirement income and also like the idea of a guaranteed death benefit then whole life insurance may be right for you.

Conclusion:

When considering the purchase of life insurance, we recommend you consult industry experts who are extensively trained to meet your needs. SimpleLife will focus on your personal needs and design the best insurance plan for you and your family!

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