Term vs. Whole Life Insurance: Which Is Better?

Not all life insurance policies fit every need and lifestyle. Let’s find out what’s right for you.

At some point in your life, you’ve probably received an offer for life insurance in the mail or through your employer, but didn’t feel well versed enough about insurance to accept the offer. That’s not surprising, as many people are not particularly knowledgeable in available life insurance options.

The two types of life insurance we’ll be reviewing are Term Life Insurance and Whole Life Insurance. Term Life Insurance lasts for a set length of time—usually between 10 and 30 years. Whole Life Insurance, on the other hand, pays a death benefit whenever you die, no matter what age that might be.

Let’s take a closer look at both.

Pros & Cons of Term Life Insurance

Term Life Insurance is the most affordable of the two types of life insurance coverage because the duration of the policy is only for a set amount of time, and there are no additional fees or maintenance required. That makes it a great option if you’re on a financial trajectory that leads to fewer financial obligations when you’re older—if you’re on track to have paid off your mortgage and you won’t have any dependents living at home, for instance. You’ll be using your own finances and savings as a safety net, rather than an insurance policy.

However, if you find yourself still needing insurance once the Term Life Insurance policy expires, you’ll have to shop around for a new one—and at that point a Term Life Insurance policy might be too expensive for your budget.

Pros

  • No additional fees or maintenance required
  • Good for that in-between period in your life when you’re still developing your finances.
  • More affordable than Whole Life Insurance

Cons

  • Coverage expires when you reach the end of the term, requiring you to shop for a new policy if you still need coverage.

Pros & Cons of Whole Life Insurance

Whole Life Insurance is just that—coverage for the whole entirety of your life. Whole Life Insurance is more expensive than Term Life Insurance because there can be an investment component in addition to the insurance. Each month, a certain portion of your premium would go towards the cash value of the policy, which grows over time like a savings account. You can borrow money from the cash you’ve saved, make withdrawals for retirement, or even pay for policy premiums with it. Not all Whole Life policies include a cash value. Check with your broker to understand your options.

Whole life insurance can have a guaranteed cash value that can act as a safety net for your finances—but it comes at a cost. Whole Life Insurance can cost as much as five to 15 times more than Term Life Insurance, causing some people to drop their policy after a few years.

Pros

  • Doesn’t expire
  • Policies with the cash value component are handy for estate planning
  • Can act as savings in addition to insurance coverage

Cons

  • More costly than Term Life Insurance
  • Other forms of investments offer better interest rates
  • Surrender value of the policy changes with time

Term vs. Whole Life Insurance Comparison

Source: https://www.policygenius.com/life-insurance/learn/whole-life-versus-term-life-insurance/ 

Features Term Life Insurance Whole Life Insurance

Duration

1-30 years

Life

Cost

$25-$35/month

5-15x more than Term

Guaranteed death benefit

Yes

Yes

Guaranteed cash value

No

Included with most policies—talk to a broker about your options

How cash value grows

N/A

Earns interest at a predetermined fixed rate (if cash value is included in the policy)

Premiums

Can increase periodically or stay level for the policy duration

Level

Risk

No risk of losing coverage, but no cash value when the term ends

No risk compared to other permanent types, but you may find better investment options elsewhere

How do I pick the best life insurance policy for me and my family?

Picking the right policy is dependent on your timeframe, current financial situation, and your expected financial trajectory. The best way to know for sure that you’re picking the right policy is to work with an insurance broker.

An insurance broker will work with you and your overall financial outlook to help determine the most favorable option. A broker can also often find ways to bundle your insurance policies together to save additional money. Basically, an insurance broker acts like a personal insurance shopper—at no extra cost to you.

Get started

Armed with some knowledge about your life insurance options, you should feel confident talking to an insurance broker about life insurance. As a big part of any financial plan, the sooner you examine your options and get a policy in place, the better off you’ll be in the long run.

At Alaska USA Insurance Brokers, we've partnered with Policygenius to bring you the premier life insurance shopping tool—quickly and easily compare personalized quotes from the nation’s top insurers to find the best policy and rate for you. After you pick a quote, a licensed expert at Policygenius will give you a call to discuss your selection and help you make sure it's the best fit for your financial needs. Get started today!

 

Compare quotes

 

Readers also liked...

Not a member? Not a problem!

There's never been a better time to become a member. Get in touch today!

Join today

Open an account

You will need your Social Security Number, Government-issued ID, and information for funding your new account handy during the enrollment process.


Visit a branch

Find your local branch

Call us

800-525-9094

You're About to Leave go.alaskausa.org

You are about to visit a third-party website not operated by Alaska USA Federal Credit Union.

Alaska USA Federal Credit Union is not responsible for the product, service, or website content on any external third-party sites and does not represent either you or the website operator if you enter into a transaction. Alaska USA Federal Credit Union's privacy and security policies do not apply to the linked site.

Continue to site OR, CANCEL