Many people often wonder what the difference is between “Whole Life” and “Term.” When it comes time for people to consider which direction they should go preparing for their future, it becomes very important to know the difference. In this case we will briefly focus on whole life and in doing so, you will also come to better understand both. Whole life is permanent life insurance that stays in force as long as you’re paying the premium. In some cases, you can “pay up” this coverage which would just mean that the coverage is in force, but you no longer need to pay the premium anymore. Term on the other hand would expire as soon as the term period runs out. This means that you no longer have to pay the premiums and you are also no longer under the protection of the coverage.
The benefits of whole life insurance are very clear. First off, whole life insurance will be there when you pass away. As long as you’re paying for it OR as long as its paid up, this coverage will be there for you when you pass away. In many cases people will die after their term insurance has already expired. I am very often putting whole life coverage in place for people who just had their term coverage expire. This is not always a bad thing, but just something to consider as you’re setting up life insurance. Secondly, whole life insurance gains cash value, which can be used by you at any time for any reason. The cash value is considered your money and you can take out loans from it without stringent approval process. If you choose not too OR cannot pay the loan back, your face value is simply reduced the amount of the loan. The third reason I think whole life is beneficial is that it is far easier to qualify for. As age and health conditions become a factor people can nearly always qualify for some sort of whole life coverage.
The drawbacks of whole life come into play when someone qualifies for term coverage that meets additional needs above and beyond death benefit (payment the beneficiary receives when the insured dies.) Term coverage is often much cheaper than whole life coverage dollar for dollar, while also opening the door to much higher face amounts. This becomes a great advantage for people preparing income for their family in case they pass away young and leave behind spouse, children, assets and other debts above and beyond final expenses. Term coverage also comes with greater ‘living benefits’ which pay portions or all of the face value to the insured while they are still alive if they get a terminal, chronic, or critical illness. This benefit is so valuable that more and more people opt for this type of coverage as long as they qualify. There are also term options that would pay you back all or portions of the premiums you paid into the plan as long as you don’t receive any of the death or living benefits during the term. While whole life plans do have some living benefits, they are not often so wholistic and none of them offer return of premium in the same manner at the low prices term plans offer. While there are instances that whole life would be a better choice for some people at younger ages, all of these factors should be considered with your broker before you move forward so you know that you are putting yourself and your family in the best possible position.
There are many other pros and cons in regard to whole life protection and which direction you should go largely depends on your situation. When looked at properly, all forms of life insurance and various life insurance products are simply tools fit for different kinds of jobs. We love helping people navigate these tools and applying them to their lives fit for the job at hand. Set up an APPOINTMENT with us and we will help guide you through the process with ease.
Joseph Doppe
