Term Insurance vs Whole Life Insurance: What’s the Difference? | QuickQuote®


quick Facts

  • Life insurance is only good for a specific period of time
  • Lifetime Locks in lifetime rates if you pay
  • Term is the cheapest form of life insurance, and whole life is much more expensive

There are many options regarding life insurance. Your lifestyle, financial concerns, and income determine what type of life insurance you should buy and how much you need.

Term and whole life are the two most common types of life insurance. Term insurance is usually cheaper because it is only valid for a specific time frame, usually 30 years or less.

On the other hand, whole life insurance lasts for your life if you make the payments. Although it is much more expensive, it lasts longer.

Life insurance provides peace of mind that your family will be financially secure after your death, so consider their financial needs when purchasing an insurance policy.

Keep reading to find out the difference between long term and whole life insurance and which one is right for you.

What is life insurance vs whole life insurance?

Long-term and life insurance provides you with peace of mind and financial assistance for your family should the worst happen. However, they are completely different.

The term of life applies to a specific period only, while the whole life is useful for your lifetime if you make payments.

In addition, costs and benefits vary greatly between the two. For example, term life is cheaper, but whole life includes a cash value from which you can withdraw money.

There are also many Types of life insuranceWhole life is just one type of permanent life insurance.

This guide will discuss the basics of life and whole life insurance to help decide what is right for you. Scroll down to learn more about term and whole life insurance.

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What is term life insurance?

Life insurance lasts for a specified period of time and is payable only if death occurs within that time frame. After your term ends, your policy expires. At this point, you can renew it, but the prices will be much higher.

However, term life is a popular option because the initial rates are very low and fixed for the life of the policy. In addition, the death benefit is insured for the entire term. It’s also a more budget-friendly option since whole life insurance can cost up to 15 times more.

How much life insurance do you need? Your lifestyle and financial obligations determine how much life insurance you need. For example, if you have a home or young children, you will need enough insurance to pay off your mortgage or college for your children.

Life is insurance only – it does not offer cash value or allow you to borrow against it. In addition, she does not build a fortune or leave a large inheritance. Rather, it is simply a way to meet certain financial obligations if the need arises.

How long are life policies?

The term of life insurance policies varies but usually ranges in five-year increments from 10 to 30 years. However, some insurance companies offer policies up to 40 years.

Remember that once your period ends, your rates increase. So, if you think you’ll need coverage for a longer period, choose the longest offered to keep prices as low as possible for as long as possible.

Some insurance companies allow you to convert a term policy into a life insurance policy, so do some research before purchasing term life insurance. Choosing a company that allows you to change your policy offers flexibility if your needs change.

What are the pros and cons of life insurance?

Like any insurance product, lifetime has its advantages and disadvantages. Consider the pros and cons carefully before choosing a life insurance product.

Life insurance pros include:

  • Much cheaper rates than other types of insurance
  • Fixed rates for a certain period
  • direct policies

Life insurance is an inexpensive way to secure your family’s financial needs after your death. If you choose a long-term policy, it may cover your financial concerns until your children are adults or your mortgage is paid off.

The negatives of life insurance include:

  • Policies only last for a certain period of time
  • Rates increase significantly once the original term expires
  • There is no monetary value for the accumulated wealth

Since your policy has expired, you may not receive any interest for the money you paid. In addition, prices increase with increased payments in the long term or with the presence of certain medical conditions.

What is whole life insurance?

Life insurance provides coverage for life if you make your payments. Prices are locked, so there is no increase or need to find new coverage.

However, the rates are much higher than life insurance. While the rates may be up to 15 times higher than the term policy, they will not increase in the future.

Whole life also has monetary value. As you make the payment, a portion of the money contributes to the monetary value of your policy. The longer your policy, the higher the cash value. After a certain point, you can borrow or withdraw against the cash value of your insurance policy.

You can then use the money however you like, like paying off a mortgage or college for your kids. The amount you withdraw is not taxed, but you will have to pay taxes on any winnings.

While you can choose whether to repay the amount you borrow, it affects death compensation. For example, if you borrow $100,000 and don’t pay it back before you die, your death benefit will be reduced by that amount

Keep in mind that you can choose to stop making payments if your financial situation changes. However, many insurance companies charge a surrender fee of up to 10% of the cash value of the policy. In addition, the rates will be higher if you buy more life insurance.

What are the pros and cons of whole life insurance?

Now, let’s break down the advantages and disadvantages of life insurance entirely.

Whole life insurance benefits include:

  • Fixed rates for life
  • Cash amount owed that you can withdraw from
  • Tax-exempt death benefits

Life insurance is an excellent option for people who want to make a fortune and use life insurance to access funds later in life. Additionally, rates do not increase with age or changing medical concerns.

The negatives of whole life insurance include:

  • Significantly expensive prices
  • Decreased death benefits when borrowing from the cash value
  • You may have to pay a surrender fee if you stop making payments

In addition, whole life insurance policies offer many options, such as accidental death and organ dismemberment, which can confuse the process. Since prices are expensive, knowing what you need to avoid paying for unnecessary coverage is essential.

What to consider when choosing between term insurance versus whole life insurance?

When comparing whole life insurance versus term, your financial situation and needs determine what type of life insurance is necessary.

If you can’t afford the exorbitant rates for life, consider a much less expensive lifetime insurance policy. Even though you don’t have access to a cash value, life insurance can still meet your financial needs.

However, you should consider your financial goals if you can fully afford life insurance. For example, do you want to use your whole life policy for retirement, leave an inheritance for your children, or pay off debts, such as tuition fees, later in life?

Also, consider other financial needs, such as children or other family members who may need ongoing medical care. Since the whole life policy accumulates monetary value, you can use it to provide needed care to those who need it.

As with any life insurance, rates vary widely by person for whole and term life insurance. For example, your medical history and condition play a large role in determining pricing. As you age or medical concerns increase, the rates increase.

The younger and healthier you are when you buy long-term or whole life insurance, the lower your rates will be. If you choose long term life insurance, choose the most extended term available to keep rates low for as long as possible.

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Term life vs whole life: which is better?

When choosing whole life versus term life, there is no right or wrong answer. The best type of life insurance is the one that best suits your specific needs.

If you need peace of mind about paying off your mortgage or paying off your children’s college fees, term life may be right for you. It’s also a great option for people who need low-priced coverage.

However, if you are looking for life insurance that is also an investment, consider whole life. Whole life is also a good option for people with special needs who need constant care.

Do agents get life insurance commissions?

Yes, agents get commissions up to 100% in the first year they sell a life insurance policy. After that, the remaining commissions drop to less than 10% in the following years.

Term vs. Whole Life Insurance: Conclusion

Both term and whole life insurance offer guaranteed death benefits and flat rates. However, each type of policy offers different advantages and disadvantages.

Life insurance is the cheapest option, but it is good for a limited period only. After your policy expires, you will have to find new coverage at higher rates.

Term of life is a good option for people who have a mortgage, children, or other financial obligations who want to ensure that these needs are met.

On the other hand, whole life insurance provides coverage for your entire life if you make payments. Unfortunately, although whole life also has cash value that you can borrow, it is 15 times more expensive than long-term life.

Now that you know the difference between whole life and term insurance, you can decide which one is right for you. Compare several companies to find one with coverage y

Frequently Asked Questions

What happens when a life insurance policy expires?

Once your life insurance policy expires, you must start a new one if you want to keep the insurance for term. However, your rates may differ significantly from your previous policy.

Remember that some insurance companies allow you to convert your insurance policy into a life insurance policy, but not all insurance companies allow this.

Does a life insurance policy have a cash value?

No, the term life has no monetary value. Instead, consider a whole life insurance policy if you want cash-value insurance.

What are the downsides of a whole life insurance policy?

Although a life insurance policy earns cash value, this money returns to the insurance company if it is not used prior to death. In addition, the whole life is more expensive than the long run.

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Editorial Guidelines: We are a free online resource for anyone interested in learning more about life insurance. Our goal is to be an objective third party source for everything related to life insurance. We update our site regularly, and all content is reviewed by life insurance experts.

Rachel Brennan has been in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she obtained a property and casualty license in all 50 states. Several years later, she expanded her insurance experience, obtaining a license in health insurance and AD&D insurance as well. I worked for a small health in…

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Rachel Brennan
Licensed Insurance Agent
Rachel Brennan

Benjamin Carr was a licensed insurance agent in Georgia with two years’ experience in life, health, property and casualty insurance. He has worked with State Farm and other risk management companies. He is also a writer and strategy editor with a background in branding, marketing, and quality assurance. He’s been in the military newsrooms – literally in the front lines of the press.

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