Whole Life vs. Term Life Policies

Life insurance policies come in two basic forms: permanent life and term life. A whole life insurance plan is a form of permanent life insurance, which means the coverage does not cease until after the policyholder dies. As you shop for life insurance, you will have to decide between whole life and term life coverage. To help you with your decision, we've compared and contrasted the two types of life insurance policies below.

Coverage Term

Term life, as the name indicates, only provides life insurance protection for a finite term. This term usually ranges from 10-30 years. Once that term expires, the policy has no additional value and life insurance coverage ceases unless the insured renews. A whole life insurance plan, on the other hand, is not limited by a term. Whole life plans are intended to provide coverage for the rest of the policyholder's life, however long that may be. Keep in mind that there are some whole life insurance plans that cease coverage at a certain age, such as 80 or 90, but this will vary by insurer.

Face Value

A term life policy has no value aside from the death benefit. In other words, a term life policy becomes worthless upon expiration and has no face value. Whole life insurance policies, however, do build value over time. The policies develop a cash value that supplements the death benefit. With term life policies, all of your premiums pay for the death benefit that your beneficiaries would receive if you died. With a whole life insurance plan, your premiums pay for both the death benefit and investment endeavors that result in cash value growth. Eventually, you can withdraw from the cash value of your whole life policy or borrow against it as long as you understand that your death benefit will be reduced if you do so.

Premiums

The premiums for term life coverage are usually the cheapest you can find. Initially, term life policies allow consumers to purchase large amounts of coverage for a fairly small price. However, term life insurance premiums rise as you get older. Later in life, term insurance may become too expensive for you to renew your coverage. With a whole life insurance plan, the premiums are initially higher than those of term policies, but they never change. As a result, whole life premiums commonly end up being cheaper than those of term policies later in life.