Term vs Whole Life Insurance: What's Best For You?

Last Updated by Neiko Johnson on 
August 15, 2021
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Term vs Whole Life Insurance What's Best For You

So many people get confused when the topic term vs whole life insurance is brought up.

On the other hand, some people think life insurance is too hard or expensive and they skip it.

Life insurance is one of those things no one ever likes to talk about even though they know it's important.

Only 59 percent of Americans have life insurance, and about half of those with insurance are underinsured, according to LIMRA.

LIMRA estimates that people with only group life insurance have average coverage gaps of $225,000.

Most importantly, these statistics show why having life insurance is important.

That is to say, having life insurance protects your loved ones if you unexpectedly pass away. There are two types of life insurance that most people consider. But, what's the best option for you? Term vs whole life insurance?

Let's get into it!

Term life insurance vs whole life insurance – what's the difference?

When it comes down to it, you really have two options when choosing life insurance – term vs whole life insurance. Let's take a look at each and analyze the differences between them.

What is term life insurance?

To begin, term life insurance provides life insurance coverage for a specific amount of time with no cash value account associated with it. Therefore, the premiums are commonly lower than a whole life policy.

When you choose a term life insurance policy, it's usually a 10, 15, 20, or 30-year policy.

If you or your spouse passes away during this term, your beneficiaries (those who you selected to inherit your money) will receive a check from the term life insurance policy.

Term life insurance has no value unless you were to die during the term. As a result, that's when the money is paid out.

Certainly, the plan is that you'll never have to use your term life insurance policy. However, you must plan for if something does happen. As a result, you'll know your family is taken care of.

What is whole life insurance?

Whole life insurance premiums (sometimes called cash value insurance) are normally more expensive than term life for a few reasons.

First off, whole life insurance lasts throughout your entire lifetime and combines life insurance with investments.

These are a few reasons why people get attracted to this type of policy.

The addition of the investments aspect is why the insurance is called "cash value." Whole life insurance costs more since it's created to build cash value over time.

To emphasize, your life insurance policy should not be used as an investment.

To put it another way, it's simply meant to provide security and protection for your family if something bad happens.

In fact, there are more productive and profitable ways to invest your money than through a whole life insurance policy.

Comparing term life vs whole life insurance

Term vs Whole Life Insurance

Term life insurance offers a few benefits:

  • Premium payments are fixed for the specific coverage period.
  • Lower monthly payments because there's no cash value inside the policy.
  • You can stop paying and terminate the policy immediately.

Cons of term life insurance:

  • When you renew your policy you may be required to complete a physical exam all over again and answer health-related questions.
  • You may be limited on the duration of your policy as you get older. For example, if you're 25 years old, you'll be able to choose 10, 15, 20, or 30-year terms. But, if you're 60 years old, you'll be limited to shorter terms of 10 or 15 years.

Pros of whole life insurance:

  • Coverage lasts your entire lifetime.

Cons of whole life insurance:

  • You will have to pay higher premiums.
  • If you borrow against your policy, your death benefit could be reduced if the loans aren't paid back.

Do you need life insurance?

The short answer is yes! You probably have insurance for electronics, your home, and your car. So why wouldn't you protect your life? Above all, your life is your most important asset.

That is to say, decide if you need life insurance by answering these questions:

  1. Does anybody rely on my income?
  2. If I pass away today, how would my income be replaced to support my family and kid's future?
  3. Will my family be able to pay for my funeral expenses and cover the mortgage/bills?

If you answer yes to any of these questions, you definitely need life insurance.

So, should you get term or whole life insurance?

Most importantly, life insurance isn't designed to make you money.

If you're leaning towards whole life insurance for that reason, you should reconsider your decision due to the high premiums for mediocre returns.

Ultimately, your goal should be to pay off your debt, save money, and build wealth so you can self-insure yourself.

You're less likely to need life insurance once you build up enough assets by following a solid financial plan.

With that being said, term life insurance is the better choice. You should purchase a term life insurance policy for 10-12 times your annual income.

That way, your salary will be replaced if you were to die unexpectedly.

Term life insurance is important for your spouse as well if you're married. Keep in mind there are expenses you have today that will continue if you were no longer here.

That is to say, you both need life insurance.

Want to make sure your family is protected no matter what?

Check out Haven Life insurance before it becomes an emergency. They offer great rates and have an A++ rating.

Final words - term vs whole life insurance

In conclusion, only having life insurance through your employer isn't enough. You don't own the policy at your employer.

Meaning, if you leave that job, and you probably will, you will no longer have life insurance.

So, make sure you get some term life insurance and don't wait until you need life insurance to get it.

We can't predict the future and life insurance has one purpose – and that's to replace your income.

The best time to get life insurance is when you're young and healthy. Your life is valuable and we want to make sure you protect your family.

Haven Life is the life insurance company we recommend for term life insurance. Please don't continue waiting to get life insurance and go unprotected.

Start here to get your life insurance quotes.


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Article written by Neiko Johnson
Neiko is a personal finance expert and Co-founder of Secret to Finance. Along with his wife Alexis, they learned how to get out of debt and paid off $400,000 in 4 years.

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