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Term vs Whole Life

What is the Difference Between Term and Whole Life Insurance

John, at age 29, is able to purchase $200,000 in term life insurance for only $13.00 a month—or so says the TV ad. Of course, the fine print that flashes by so quickly you can't read it says that it is a ten year policy for a super-preferred, non-smoker and that your price may be different. The trick is to know what you are actually getting, and above all, to understand the concepts of Term Vs Whole Life Insurance.

Helping you define Term and Whole Life

Term insurance is exactly what it sounds like—insurance for a particular time period ranging from 5 to as much as 40 years, depending on your age. At the end of that time period, the contract expires. You can renew it for an annually renewing term at a much higher cost.

Whole Life Insurance is for your "whole" life which usually means until the day you die. Whole life is considerably more expensive. For example, a whole life policy for the individual in the example above would be $151 per month.* However, the 10 year term at age 69 (40 years later) would cost the same individual $173 per month. Each type of policy has its own advantages and disadvantages, so it's important to know the nature of your need.

Advantages of Term Insurance

  • Very high face values are available at a low cost.
  • Most policies have available riders that would continue the insurance in the event of disability.
  • The insured has the option of converting the policy to whole life during the lifetime of the contract.

Advantages of Whole Life

  • Coverage is for a person's entire lifetime.
  • Policies earn cash value which can be borrowed against or even cashed out if needed.
  • The cost over time on a whole life policy will be less than the accumulative cost incurred by renewing the Term each time it reaches its maturity date.

Questions to Ask in Determining Your Need

  • Do I have a need for a high face value at the cheapest premium to cover a mortgage or protect a family? = Term
  • Do I have a business I need to protect for a limited time period? = Term
  • Do I just want coverage during the years that I am building retirement assets? =Term
  • Do I want something that will last my whole life? =Whole Life
  • Do I want something that will build cash and add to my net worth? =Whole Life
  • Do I intend to leave a legacy to a favorite organization or family member? =Whole Life
*The example provided is based on the premium rates of one company. Each company will have its own rate structure.
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