fbpx

Term Life Vs Whole Life: PROS & CONS

Term Life Vs Whole Life

So first off congratulations on making it this far and doing your due diligence and research on what is best for you and your family. Believe it or not 50% of people looking for life insurance often skip this step. Therefore are misled which often causes consequences down the road.  You may have heard about the two most common types of life insurances that are purchased by adults like yourself. Term And whole Life.

Let’s continue our journey and actually take a deep dive into the structure and setup of each of these types of policies so that you have a clear understanding of what to expect and don’t have any surprises later in life.

Do keep in mind life insurance is not something you buy with money it is something you buy with health.  Your health is ultimately used to determine if you are eligible and can qualify.  Health will determine if you even have the option to buy and have something to think about or consider.

Term Life

Term life insurance is characterized by its set term length of years.  Typically 10, 15, 20 or 30 years. If you were to pass away within the term length, your beneficiaries are paid a tax-free death benefit equal to the coverage amount of your policy.  The right life insurance term length for you might be until your kids are financially independent. Or similarly a time period of your mortgage being paid off.  Likewise, consider any student loans you’ve accumulated.  The coverage should be  enough to cover debts or final expenses. 

Pros

  1. Cost is cheap: You can get more coverage for a lower premium in comparison to a whole life and save money
  2. You have the options to select how long you want the policy to last whether that’s 10, 20, or 30 years.
  3. Some companies do provide a renewable option
  4. Good option if you have a short-term need like temporary loans/debt or mortgage protection

Cons

  1. It is temporary insurance and will expire
  2. Does not have any Cash Value to borrow from
  3. Once policy expires, you will need to apply for a new one
  4. Term is typically not an option available for people in their upper 70’s

Whole Life

Whole life insurance is a type of permanent life insurance policy. Unlike term life, whole life insurance provides coverage for your entire life and includes a cash accumulation component.  The policy’s cash value grows over time. The policy’s cash value grows slowly and the gains are tax-deferred, which means you won’t pay taxes on the gains while they grow.

Pros

  1. Lifelong Coverage that does not expire and guarantees that your beneficiary will receive a death benefit
  2. Builds cash Value which you can borrow from in case of a financial emergency
  3. You have the ability to sell your policy and claim the cash value that has built up in the policy absolutely Tax-Free
  4. A perfect policy for anyone looking to cover the cost of funerals and burials otherwise best known as Final Expense Cost.

Cons

  1. Cost more in comparison to Term life
  2. If you miss payment of premiums the policy will be terminated
  3. If you are in bad heath some companies will require you to pay into the policy for the first two years. Thereafter, the death benefit will only be paid out if you outlive the initial two years. It’s called a 2-year waiting period while your policy is active.