Term vs Whole Life Insurance


Many people in America own life insurance policies because they want to prepare for what happens to their families when something happens to them. They purchase term insurance, which is temporary and can be discontinued when the policy term expires. Or they choose whole life insurance, which provides coverage that lasts for the duration of the insured person's lifetime [i.e., you cannot cancel it]. If you decide purchasing a whole life policy is right for you, then there are some advantages that might make it worth your while.

What Is Whole Life Insurance?

Whole life insurance is permanent coverage that remains in effect until the death of the insured person. Unlike term insurance, there are no end dates on this type of plan. The premiums remain level during the life of the policy, and you can usually borrow against a portion of it.

When you purchase a whole life insurance policy, part of your premium pays for insurance coverage while the other part goes into an account that builds cash value [i.e., premiums paid in minus withdrawals from that account]. You can use some of this money to pay your premiums if you stop paying them with your own income [plus interest]. After your death, this money is used to cover what will be owed on the policy [unfortunately, remainders are not donated to charity or otherwise disposed of according to deceased's wishes]. However, there are some situations where withdrawing from these accounts may cause a reduction in benefits.

Depending upon how long you live, you can choose a whole life policy that pays a specific face amount--or the money needed to cover your funeral costs and any other outstanding debts. A shorter lifespan means lower premiums while a longer one raises them [interest is figured in along with mortality probabilities].

Pros of Whole Life Insurance

In most cases, premium payments for whole life insurance are more expensive than they would be if you had purchased term coverage instead. However, because the premiums remain the same throughout the lifetime of the insured person, people who have this type of policy receive various benefits:

It offers guaranteed insurability [i.e., no matter how much weight you gain or whatever medical problems arise later on you will still be eligible for a policy] 

The purchase of a whole life policy is completely tax deductible [as long as it is purchased with after-tax dollars], so you can save on income taxes when you purchase the policy.

You have access to your cash value through different options, such as borrowing against it or taking partial withdrawals from it [you just have to be careful not to withdraw lump sums in order to avoid the IRS' 10% penalty for early withdrawal]. 

It provides a death benefit that will pay out upon your death, which helps prevent any financial hardships that might occur if your family were left without an income. It also provides protection during times of unemployment.

Whole life insurance policies are permanent coverage, which means they do not expire unless you cancel them or stop paying your premiums.

Cons of Whole Life Insurance

The premiums you pay for term insurance are generally less expensive than whole life premiums [although, in some cases term insurance ends up being more expensive in the long run]. That means that if you buy a 30-year level term policy and keep it until death, your premiums will be significantly less than they would have been for a similar whole life plan. 


Whole life policies are not flexible when it comes to payment options. If the insured person misses or is late on a premium payment, there is no grace period or repayment plan with this type of insurance policy. 

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