Compare and contrast: Term and whole life insurance.

The value of term life insurance.

The value of whole life Insurance.

Both offer valuable protection, but each has different features. Which one may be right for you?

Needs evolve. And your insurance should change with them. But deciding what product is best for you can be difficult. While there are benefits to retaining your term policy, many people enjoy added protection by converting to a permanent or whole life insurance policy.

Term life insurance is designed to help people purchase the protection they need when they can’t afford to purchase permanent life insurance or when they only need coverage for a specific time period. Term life has a guaranteed death benefit but no cash value and the premiums will increase at pre-determined intervals such as after one year, five years, 10 years, or 20 years, depending on the kind of policy you purchase. It often ends at the age of 80.

It’s also very often the product of choice when protection needs may be high for a period of time, such as to pay off a mortgage, replace income from a job, etc. Term insurance is typically better than whole life for younger ages since the need for a large policy is greater, and it is more affordable to buy term.

In contrast to term insurance, whole life was designed to provide life insurance coverage plus other “living benefits,” including guaranteed cash value accumulation as long as premiums are paid, eligibility to earn dividends,1 and the access to cash value via loans and partial surrenders.

Here’s why whole life is often the best long-term solution:

Term is cheaper, so why not buy term? People are living longer now than ever before. The need for permanent coverage is more important the older a person gets, as it gets very costly to buy new insurance the closer one gets to age 75. Less than 2% of all term policies end up paying the beneficiary. Over 98% of the term policies sold either lapse or expire without benefits, and no claim is ever paid.

Many term policies purchased through mail and over the TV end at the age of 80. If you are purchasing coverage to pay for your final expenses and/or burial costs, you need permanent coverage. Many companies do not even offer coverage to someone at 80, and if they do the price is very high.

Whole life provides life-long insurance protection. Once you have been approved for coverage, your policy cannot be canceled by the carrier as long as premiums are paid when due. Regardless of your health, the insurance will remain in force.
Whole life builds guaranteed cash value, provided premiums are paid. This amount can be used in the future for any purpose via a policy loan. For example, you can borrow cash value for a down payment on a home, to help pay for your children’s education, or to provide retirement income.

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