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Whole vs. Term Life Insurance: What's the Difference?

Written by: Michael Gissas

The terms whole and term in the life insurance industry refer to the amount of time that a life insurance policy will pay death benefits.

A whole life policy is a type of permanent life insurance. It covers you for your whole life, and also includes the benefit of cash value based on the worth of the return on investment.

A term life insurance policy covers you for a predetermined period, or term. It is less expensive than a whole life insurance policy but does not hold cash value and expires at the end of its term.

The differences, however, go deeper. Each policy comes with a set of rules that make it beneficial in varying scenarios. Life insurance policies can be used to protect your family or as a safe, tax-sheltered investment. Weighing the risks and benefits of each will allow you to get the most out of your insurance.

Term vs. Whole Life Insurance Reference Table

To help you better break down the difference between each type of life insurance policy, reference the table below.


Term

Whole

What is it?

Life insurance that pays in the event of death during a predetermined term of coverage. Life insurance that pays in the event of death at any time and builds cash value as an investment.

Who does it benefit?

  • Those who cannot afford large premiums
  • Those who want to provide financial coverage for the unexpected
  • Those who work in high-risk jobs temporarily or permanently.
  • Those who expect to convert their policies to whole life insurance after 50
  • Those who wish to make a low-risk investment or supplement a retirement savings plan
  • Those who prefer to be prepared for the unexpected with thorough financial coverage
  • Those who can afford a higher premium
  • Those who plan to remain in good health

What does it pay out?

Benefits are paid upon death of the policyholder according to the stipulations outlined in the policy. Benefits are paid upon death of the policyholder according to the stipulations outlined in the policy, or the cash value of the policy may be redeemed according to the same.

How much does it cost?

The average cost of term insurance varies from about $30-$300 per month based on factors such as age, health, and death benefit amount. The average cost of whole life insurance varies from about $200-$700 a month based on factors such as age, health, and death benefit amount.


Keep in mind that there is a long list of factors which insurance companies look at when determining your premium. These include:

  • Gender
  • Tobacco Use
  • Personal & Family Health History
  • Driving Record
  • Criminal Record
  • Credit Attributes
  • Work Environment

Higher risks mitigate the mutual benefit of life insurance for insurance companies and policyholders. The goal is to protect policyholders while looking out for the health and happiness of the company and its employees.

It benefits you and your insurance company when you strive to take care of your health, drive safely, work according to your company’s safety policies, and build a solid financial foundation. You may use your life insurance policy as a tool for protection, investment, or both; make your choice based on your needs and the needs of those who depend on you.

The pros and cons of term vs. whole life insurance can be difficult to unpack. Make sure you understand your options by working with an experienced financial advisor: schedule a meeting with Americans for Life now.

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Americans for Life Financial Services offers retirement solutions for institutional investors and individuals. Knowledge and results help our clients make informed decisions to meet their financial goals. 




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