what's the difference between term life insurance and whole life insurance?

Answer 1

Term insurance is where you see the need that you only need temporary life insurance and don't expect anyone to be dependent on your income if you outlive the term. There are inexpensive and most term policies are renewable when the level term expires. The policy itself doesn't expire, it just renews itself when it expires. When it renews, your premiums will go up since you are older. Most people get a 30 year term because they have a 30 year mortgage.

Since term is so inexpensive, people usually invest the difference into their retirement accounts. Whether its a 401k, 403b, IRA, etc.

Whole life is a permanent insurance that contains cash value in it. You are covered for life or until you reach age 100. Whole life is the most expensive life insurance product out there. While cash value grows tax-deferred, it is important to know that if you ever wanted to use it, you have to borrow it with a loan interest of 5-8%. If you die, you will lose all cash value. Only way you can take the cash value is that you surrender the policy. Surrender charges may apply.

Here's a hypothetical illustration of the costs for a 30 year old male seeking $100,000 coverage.
With a 30 year term, it would cost around $300/year.
With whole life, it would cost around $2000/year.

That's a $1700 difference!

As you can see, the bigger the annual premiums, the bigger the commissions a life insurance agent will make. You can see why whole life insurance is more commonly sold than term. Agents will say anything to make people buy whole life or some other cash value life insurance policy. They'll say things like term insurance rarely pays death claims. Well, do you know when you going to die? Of course not. So how would insurance agents know that term rarely pays death claims? I'll tell you how. They never sold a term policy in their life and yet they own it themselves!

Life agents will also say that term gets more expensive when you renew it. While that is true, most people who buy term buy a long term policy such as 20 year or 30 year term. When the term expires, their needs change and so they might not need as much coverage or probably don't need life insurance any more. You have to be careful when purchasing term insurance. Most agents will sell you a short term insurance of 5 year or 10 year term and then come back to you to convert it into whole life.

Answer 2

I don't know if any of the other people who responded are licensed insurance agents, but I am a Certified Insurance Consultant in the State of Connecticut. Everybody's circumstances are different and cannot be answered so generically. I would recommend that you contact an insurance professional in your area and explain to him/her your circumstances - health, family, debt, retirement, etc., and let them make a recommendation based on your needs.

Term insurance is very cost effective, and in some cases, can include a rider that would allow for return of premium at the end of the term. It also can be "Guaranteed renewable and convertible" to permanent insurance, so, if you do become ill over the term of the policy, you have protected your insurability.

Talk to a professional.

Answer 3

The people before me have given some good information, but it's not quite complete.

Term is, like they said, for a certain term (10, 20, 30 years) and only pays if you die during that period. If you don't and want a new term policy, then you will pay a minimum (usually) of 3-4 times the premium you were used to paying. Additionally, if you were to contract a disease (i.e. cancer, diabetes) during your term, good luck getting covered once your term runs out.

Permanent life insurance (Whole life and universal life) has a death benefit and cash value. Your premiums stay level throughout (they do NOT increase every month like one guy above me said) and once you are done paying, the cash value in your policy will continue to grow. You can "borrow" from the cash value in order to pay for your kids' college, supplement retirement or any other reason and you do not have to pay that loan back as it comes out of the death benefit. And, as long as the policy remains in force, that money is not taxable.

The benefit to universal life as opposed to whole is that universal is more flexible and allows you to make changes to the policy (premiums, death benefit) if you want. Whole is much more rigid.

If you have any other questions, feel free to e-mail me and I'll be happy to help. Good luck!

Answer 4

Term life insurance ,you can buy a large amount of coverage for a chosen number of years to cover your needs in the years you need money most (to cover your young family,pay for your home and any other needs.)there is no cash value here,you are paid only if you die naturally,or by accident.The younger you are the cheaper the rate per unit.These policies usually are terms of ten to twenty yrs plus. Whole life policies, you pay for a determined coverage all your life and your heirs you name get the money when you die. There is a cash value which you can borrow on when enough value is accumulated

Answer 5

Term is like renting the insurance for a period of time, whole life is like owning it. With whole life you may get the insurance to pay itself thru dividends, but it does take time. Also, the rate you pay on term will go up with each renewal, where whole life will remain the same.

Answer 6

Bottom line term is better and cheaper than whole life. when u die u lose your saving in a whole life policy. question would you put your money in the bank, and when you needed it, u had to borrow it? that's what happens when you buy life insurance as a investment. when you die the insurance company steals your money. u do not get the insurance and the savings. buy term and invest your saving outside your policy. when u die your spouse gets the insurance and the saving,because you bought them separated. insurance agents gets paid a lots more money by selling you whole life insurance.

Answer 7

The others have given good info. When considering life insurance, consider that 97% of term policies never pay a death benefit. The policyowner typically outlives the term or drops the policy. If you are assured of having enough savings for your entire life to pay all of your expenses even some unforeseen expenses, then term works well.

Also consider buying both term and permanent insurance.

Go talk to one or more financial professionals including insurance agents in your area.

Good Luck.

Answer 8

Term insurance costs a relative low cost however it's like 'rent'... once you pay, the money is gone. The cost is stable over a certain period of time (that's the "Term")

Whole life - you pay a higher amount every month, and likely don't get the same death benefit amount, however, it accrues interest and, eventually, the amount of interest would equal the monthly payment (takes years to get there)

Answer 9

Whole life is for the rest of your life.
Term life is for whatever term you have it for. 10 years, 20 years. After the term is up, your policy is expired. You can get another policy but the rates will be base on the your current age. Whole life is a better plan with better benefits.

Answer 10

term spells out the time frame of coverage and is cheaper to buy or buy more of. Whole life is for life and can build cash value. It depends on what your use will be. Also agents earn more commission on whole life than term so they push it. I own 1 whole life and is is enough to bury me. The rest is term