What is the difference of term life and whole life?

Question

What is the difference of term life and whole life?

Answer 1

Term life is straight life insurance where you pay a premium for a set term and the insurance company agrees to pay you a set amount if you die within that term.  Whole like insurance is term insurance plus an investment component.  You pay a higher premium and part of it is invested for you and accumulates over your whole life.

Whole life insurance is usually much more expensive because part of the premium goes to pay commissions to the salesperson.  Most people would be better off with term insurance and investing on their own.

Answer 2

For term, you pay the same premium every year for the term of coverage (5, 10, 20, 30 years).  For whole life, you pay the same premium every year for your whole life, until you die, or turn 100, whichever comes first.

Answer 3

Actually exactly what it states; term refers to insurance effective for a certain term, ie 5 yrs, 10yrs, 30 yrs.....Whole life last for the remainder of your life

Answer 4

Think of Term Life as something you lease/rent.  The policy pays the "face value" that you selected if you pass away while the contract is in-force.  If you complete the term (e.g. 10 years / 20 years/ 30 years); then a new contract must be signed.  However, most carriers will have a provision that can be purchased, usually as a "rider" or optional component, that will allow you to keep the policy past its termination or maturation date - renewable each year from there - with some sort of rate adjustment.  Most Term policies' rates are level/fixed for the duration of the contract.

One big problem with Term is if you have a major medical event during the life of the contract, and you don't have a provision for keeping the coverage past its maturation date, then you could be deemed "uninsurable" and not qualify for any coverage of any type.

Whole Life is a policy that you OWN.  There is a savings feature included with this type of plan.  The rates are considerably higher, and the growth of the plan is at a conservative rate (approx. 4%/annual).  This keeps you 1% point ahead of inflation.  If you are alive at the end of the contract, you have a whole host of options to consider.  Most convert the policy's actual cash value (not what the policy would pay had one passed) at time of maturation to an annuity.  Groups like MetLife, Northwestern Mutual, and other can help with annuity options.  Finally, you could cash-out, and pick-up a term policy if you are still insurable.

In short, take your time selecting the best type of coverage with the help of an agent(s) you trust implicitly.  Good Luck!

Answer 5

Term insurance:

1) Does not build cash value. So it gives you the freedom to save or invest your money where ever you want.

2) Its simple pure life insurance.

3) Low premiums

4) Premiums remain level during the term (ie 10 year, 20 year, 30 year)

5) Majority of term insurance are guaranteed renewable after the term, meaning no medical exam is required.

Whole life insurance:

1) Level term insurance to around age 100.

2) Builds cash value.

3) Premiums are 2-5 times higher than term insurance.

4) Cash value usually get a rate of return between 1-4%.

5) If you wish to use the cash value for any reason, you have to borrow it and pay loan interest of 6-8%.

6) If you die someday, the insurance company keeps your cash value. Unless you choose a death benefit option to include the cash value, which will result in higher premiums.

Personally I own 30 year term insurance and invest about 10% of my monthly income into a Roth IRA.