Term vs. Whole Life Insurance: Making the Choice
Summary: Choosing between term and whole life insurance depends on your financial goals, coverage needs, and budget. Term life typically offers affordability and simplicity, while whole life provides lifelong coverage and a savings component.
Have you considered how your loved ones may take care of your final expenses after you pass? Life insurance can help ease the worry and financial burden.
Life insurance is a financial contract where the insurer promises to pay an agreed sum of money to the insured’s beneficiaries after the insured dies, as long as the premium is paid. When evaluating life insurance, your options are typically term and whole life insurance. Both policies offer distinct benefits, but knowing the specifics of each plan, how they differ, and how each policy can fit your needs will help you make the right call.
Ultimately, your choice of insurance policy will depend on your financial goals, the degree of coverage you need, and the desired duration of protection.
This article discusses the term vs. whole life insurance debate, exploring what each plan entails, how they vary, and what factors you should take into account in making your choice.
What is Term Life Insurance?
Term life insurance is a type of life insurance policy where coverage spans for a designated “term,” usually ranging from 10 to 30 years. In exceptional cases, this term could stretch further.
If the policyholder passes away within the coverage period, the beneficiaries receive the death benefits. Should the policyholder outlive the term, the coverage ends and no benefit is paid. Although some term plans allow you to switch to whole life insurance or renew, their premiums are typically higher.
How term life insurance works
Term life insurance is an affordable life insurance plan that provides financial protection for the insured over a certain set period. Here is a thorough overview of how term insurance works, along with the guidelines for obtaining a policy:
- First, figure out the required coverage: You can use a life insurance calculator or consult an insurance agent to help you with this.
- Submit a policy application: Get your driver’s license or ID, evidence of income, and proof of address (such as a utility bill or rent receipt) Choose someone you want to be your beneficiary—that is, the person you choose to get the death benefit in the event you pass away during the term. Either use an online application or call an insurance representative.
- Policy issuing: The insurance firm will go over your application to confirm your Your insurance policy will arrive after your application is accepted, and it will list certain details about the policy—that is, the term duration, premium rates, death benefit, and any other coverage terms.
- Term expiration: If the coverage period expires and the insurer is still active, there are several choices to You could allow the insurance to expire, renew, or convert to a whole-life policy.
Benefits of term life insurance
Term life insurance has several benefits that make it an attractive life insurance plan. They include:
- Term life insurance is generally more affordable than whole life insurance because it provides coverage for a limited period and does not include a cash value component.
- The straightforward nature of term life insurance makes it simple to understand and manage. There are no investment components or complex terms to navigate.
- Term lengths are This means you can choose the term based on your needs, whether you want coverage for 10, 20, or 30 years.
- Because term life insurance is typically more affordable, you may be able to purchase higher coverage amounts.
What is Whole Life Insurance?
Whole life insurance is a type of permanent life insurance that provides coverage for your entire life as long as premiums are paid; unlike term life insurance, which only covers you for a specific period.
How whole life insurance works
In most cases, whole life insurance is more expensive than term life insurance. But how does whole life insurance work? Here are the details:
- Determine your coverage amount: Use Mutual of Omaha’s life insurance calculator or speak with an insurance advisor to determine the right death benefit based on your financial
- Application and underwriting: You need to apply for the policy and undergo underwriting. Upon approval, the policy will be issued.
Note: With some policies, there may be a guaranteed approval process. With United of Omaha Life Insurance Company, if you are between the ages of 45-85 (in NY, 50-75), you are guaranteed approval with no medical exam required.
- Build cash value: Over time, a portion of your premiums goes toward building cash value, which grows tax-deferred. You can borrow or withdraw from the cash value during the premium paying term, though this may reduce the death It’s important to note this may come with tax implications, so consult with a tax professional in advance.
- Guaranteed payout: Upon your death, the policy pays a guaranteed death benefit to your
Benefits of whole life insurance
People who purchase a whole life insurance policy can expect a number of benefits, including:
- Lifetime insurance coverage: Unlike term life insurance, which ends after a certain period, whole life insurance covers your whole life so your dependents may receive the death benefit upon your passing.
- Growing cash value: The cash value of the insurance acts as a living benefit available throughout your lifetime. This can act as a financial safety net, which provides flexibility and extra financial resources when required.
- Tax-deferred growth: The tax-deferred growth in the cash value lets your investment build without immediate tax This means you can maximize the growth of your investment over time.
- Financial legacy: One of the main benefits of whole life insurance is that it can help you leave a legacy for your heirs. Your loved ones can use the payment to help cover final expenses or unexpected expenses after you pass. Since you can also get whole life insurance for your children or your grandchildren, it offers a means to help safeguard their financial future.
Key Differences Between Term and Whole Life Insurance
When deciding between whole vs. term life insurance, it’s important to understand the key differences that set these two types of policies apart. The table below has the key differences between term and whole life insurance.
|
Key factors |
Term life |
Whole life |
|
Coverage duration and expiration |
Term life insurance provides coverage for a specific period. Once the term ends, the policy ends and no benefits are paid unless the policyholder renews or converts the policy.
|
Whole life insurance offers lifelong coverage, ensuring that your beneficiaries receive a payout when you pass away, as long as premiums are paid.
|
|
Premiums and cost considerations |
Term life insurance typically comes with lower premiums. However, premiums can increase upon renewal.
|
Whole life insurance has higher premiums, but these remain fixed throughout the life of the policy. |
|
Cash value and investment options |
Term life insurance does not accumulate cash value. It only provides a death benefit if the policyholder dies within the coverage period.
|
With whole life insurance, a portion of your premium goes into an investment that grows tax-deferred over time.
|
|
Underwriting process |
Term life insurance typically requires a medical exam and detailed health questions as part of the approval process.
|
Certain whole life insurance policies, particularly in the final expense category, do not require a medical exam or health questions.
|
Choosing Between Term and Whole Life Insurance
Here are some factors you should consider when choosing between term and whole life insurance.
Weigh the benefits
When assessing term and whole life insurance, think about what you value most. While whole life gives lifetime coverage with added cash value advantages, term life offers reasonably priced, straightforward protection for a designated period.
Financial goals and budget
If you want to keep expenses low and want coverage for a defined period, term life insurance can be a good choice. Those who can pay more for premiums, desire long-term coverage, and want to increase cash value over time may find whole life insurance more suitable.
Coverage need and duration
Term life insurance matches certain financial responsibilities, such as mortgage terms or the years till retirement. On the other hand, whole life insurance provides lifelong protection if your demands span into your later years, providing peace of mind that you’re covered throughout your lifetime.
Possible risks
If you have a higher risk tolerance and find the cash value component attractive, you might find whole life insurance appealing. However, those with a lower risk tolerance may prefer the simplicity and predictability of term life insurance.
Is Whole Life Insurance the Right Choice for You?
As mentioned, whole life insurance comes with a number of benefits. But is it the right choice for you? Read on to know.
Who can benefit from whole life insurance?
Whole life insurance is particularly beneficial for individuals between the ages of 45 and 85 (in New York, 50-75)
- looking for lifetime coverage with additional financial
- who want to ensure that their loved ones receive a guaranteed death benefit when they pass away
- interested in a policy that grows cash value over time
- who need a stable, predictable insurance plan that will not expire as long as premiums are paid
- who need coverage that does not require a medical exam or health questions
Considerations for different life stages
Your requirement for life insurance could change as you go through various phases of life. For younger people and families, whole life insurance offers a long-term financial planning instrument that helps and offers lifelong protection. For individuals who want to help take on the financial obligation of final expenses and give some peace of mind to the family after passing, the cash value component makes whole life insurance a strong choice.
Whole life insurance can provide some financial security and peace of mind, especially if you are aged 45-85 (50-75, in NY) and want guaranteed coverage with no medical exam. Your financial responsibilities may change as you grow older; maybe your mortgage is paid off or your kids are financially independent. Still, the need for life insurance is great, particularly if you want to help cover final expenses or help with any unexpected expenses.
Decided that whole life insurance is the right choice for you? Calculate your needs and get a quote using the Final Expense Estimate Calculator. A policy from United of Omaha Life Ins Company can offer peace of mind and help secure your family’s future.
Make the Right Choice
Having explored term vs. whole life insurance, it is undeniable that both policies have their own distinct advantages. This means that choosing between them depends on your financial goals, coverage needs, and more. You need to weigh the pros and cons of whole life insurance and term life insurance to make a good choice.
If you’re ready to take the step toward your insurance journey, Mutual of Omaha can help you find a life insurance solution to meet your needs.
FAQs
Q1. Can I convert my term life insurance to whole life insurance?
Yes, many term life policies offer a conversion option, allowing you to switch to whole life insurance without undergoing a medical exam. The conversion must be done within a specified period.
Q2. Does whole life insurance pay dividends?
Some whole life insurance policies from mutual insurance companies may pay dividends, which can be reinvested, used to reduce premiums, or taken as cash.
Q3. What happens if I stop paying premiums on a whole life policy?
If you stop paying premiums, the cash value of your policy may cover them for a time, but eventually, the policy could lapse.
Disclosures:
Consult with a professional tax and/or legal advisor before taking any action that may have tax or legal consequences.
Life insurance and annuities are underwritten by United of Omaha Life Insurance Company, 3300 Mutual of Omaha Plaza, Omaha, NE 68175. United of Omaha is licensed nationwide except in New York and does not solicit business in New York. In New York, Companion Life Insurance Company, Melville, NY 11747 underwrites life insurance and annuities. Each company is responsible for its own financial and contractual obligations.
Products and services may not be available in all states.
Policy form ICC18L198P or state equivalent. In FL, D787LFL19P, In NY, 1002Y-0119.
© Mutual of Omaha Insurance Company. All rights reserved.