Whole v. Term Life Insurance: A Primer

Written By Darin Ryburn

With the number of different insurance products in the marketplace today, consumers have many more choices than they did twenty, thirty, or even fifty years ago. But with those expanded choices comes a need to do a little more homework, so that the right product is secured. When it comes to term insurance vs. whole life insurance, there are a few key differentiators that might make it easier to answer the question “Where do I begin?” when shopping for life insurance.

Whole Life: Just What the Name Implies and More

The most common type of permanent insurance, whole life, covers a person from the time it is purchased until the day they die, as long as premiums are paid. Upon a person’s death, the policy’s death benefit is paid to the named beneficiary. Whole life insurance premiums are costlier than term insurance, sometimes upwards of more than ten times as expensive, but there is a significant difference to whole life insurance: The cash value of a whole life policy is guaranteed to earn a minimum amount of interest. Additionally, they may sometimes earn dividends that can be used to lower premiums, paid out in cash, or left alone to continue earning interest. Therefore, whole life insurance functions as an investment, in addition to providing a death benefit.

Term Life Insurance

Term life insurance is also defined by its name, in that it is for a set period of time. When the policy expires (e.g., ten, twenty, or thirty years), the insurance ends. There is no payout unless a person dies while the term insurance policy is in effect. Therefore, term insurance is strictly insurance — it is not an investment that accrues cash value over time. This is one reason why it is one of the most affordable types of life insurance. Many people opt for term life insurance for the primary breadwinner in a family. For example, if a young family has only one parent with earning power, it might make sense for he or she to have a 30-year term life insurance policy. This would, in effect, provide an insurance safety net in case that person is unable to work due to death or some other limiting injury. Many families rely on term insurance until their children are out of college and no longer dependent financially.

Alternative Options to Life Insurance

Burial and funeral insurance, sometimes called “final expense insurance,” while not technically a “life” insurance, is considered a type of whole life insurance that pays for burial costs and other related expenses after a person dies. Another variety under the umbrella of whole life insurance is mortgage insurance, which is a relatively affordable option that some families choose because it provides peace of mind that if the main or sole breadwinner dies, the remaining family member won’t necessarily lose the house due to inability to pay the mortgage. 

Term and whole life insurance are among the most popular and common types of life insurances in the marketplace. And both insurance products provide a tax-free death benefit payout. However, there are many variations in what they offer depending on what carrier is chosen. For a complete understanding of the various types of insurance options for each of these two popular categories, consult an insurance professional.

If you have questions about long-term care coverage or how NPFBA can help serve you, feel free to reach out to us via our website, phone, email or schedule a zoom meeting and let’s grab some face time!

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