Term and whole life insurance are two types of life insurance that are very different, but have a few things in common. Which type of life insurance is best for you depends on your age, health, how much coverage you need, and your goals for the policy.
What happens to term life insurance at the end of the term? What is the difference between whole life vs term life insurance? Find the answers to these questions, plus term vs whole life insurance pros and cons, below.
Term vs Whole Life Insurance: Length of Coverage
Term life insurance offers temporary coverage, usually between 5 and 30 years. Most people buy term life insurance to pay for temporary needs, like:
- Paying off your mortgage, student loans, or other debts
- Replacing your income
- Paying for your children’s education
- Allowing your spouse to stay home to raise children instead of going to work
- Provide for your spouse’s retirement
The length of coverage to choose for term life insurance depends on your needs, but most people choose to buy 20, 30, or even 40 years of term coverage, if they’re young and healthy enough to qualify for it.
Whole life insurance is permanent life insurance, so it lasts your whole life. You don’t need to worry about the policy expiring, because it will be in place until you die, as long as you pay the premiums.
Term vs Whole Life Insurance: Premium
When you compare term vs whole life insurance premiums for the same amount of coverage, term will always be cheaper. That’s because term life has an expiration date and whole life doesn’t.
Depending on how much coverage you need, you might not be able to afford a large amount of whole life insurance. Since you can own more than one life insurance policy, most people satisfy most of their coverage needs with term life because it’s cheaper, then buy enough whole life to pay for lifelong needs, like their funeral and final expenses.
How much the policy will cost depends on your age, gender, health, and coverage amount. The younger and healthier you are, the cheaper your term or whole life insurance will be.
Term vs Whole Life Insurance: Medical Exam
Whether you have to complete a medical exam depends on the company, policy, and coverage amount. The more coverage you get, the more likely you have to take a medical exam.
Some term life insurers offer coverage without a medical exam, but the rates can be higher. If you’re very healthy, you can usually get a cheaper rate by taking the medical exam.Some whole life insurers require a medical exam, but many don’t. And if you buy final expense insurance, which is whole life insurance for seniors – though some companies offer coverage to anyone over 18 – you don’t have to take a medical exam.
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Term vs Whole Life Insurance: Guaranteed Payout
Both term and whole life insurance offer a guaranteed payout, which is the death benefit. As long as your policy is active and paid when you die, your beneficiary will receive the death benefit.
Now, if you outlive your term life insurance, there is no guaranteed payout because the policy expires. With whole life insurance, there is no expiration date, so your beneficiary will receive the death benefit when you die.
Term vs Whole Life Insurance: Cash Value
Cash value is a part of a life insurance policy that acts like a savings account. When you make a payment, a portion of the payment goes into the cash value account. Over time, the amount will grow, and may also earn interest. You can borrow against the cash value once it reaches a certain limit, but if you don’t pay it back before you die, it will lower the death benefit your beneficiary receives.Term life insurance doesn’t build cash value, which is one reason it’s cheaper. Whole life insurance does. The cash value grows tax deferred unless you take it out, then you have to pay taxes on the growth.
Term vs Whole Life Insurance Pros and Cons
There are pros and cons to both term and whole life insurance.
Although term life insurance is cheaper than whole life, it has an expiration date and doesn’t offer cash value.
Term life insurance doesn’t offer coverage for permanent life needs like whole life insurance does.
Some term life policies let you renew coverage before it expires, but the price increases based on your current age. With whole life, your rates are locked in for life and will never increase.
Not all term and whole life policies require a medical exam, but if you take one, the results can increase or decrease your quoted price.
Frequently Asked Questions About Term Vs Whole Life Insurance
Which is Better: Term or Whole Life Insurance for Seniors?
Whole life insurance is better for seniors. Even though some younger seniors can qualify for term life insurance and get a cheaper rate, they might outlive their term coverage. If they do, then they’re probably too old to qualify for more term and whole life will be expensive and may be out of budget. It’s better for seniors to buy whole life and lock in the rates and other benefits instead of buying term life insurance.
Is Whole Life Insurance Worth It?
Whole life insurance is worth it if you have permanent coverage needs, or if you’re a senior and only need a small amount of life insurance. Final expense life insurance for seniors offers coverage without a medical exam. Healthy seniors can answer a few health questions to get a cheaper rate. Seniors in poor health can get guaranteed coverage without any health questions or medical exam.
What Happens to Term Life Insurance at the End of the Term?
At the end of the term, term life insurance expires. If you still have life insurance needs, you might be able to renew the policy or get a new policy, but you’ll pay higher rates at your current age.
Can You Cash Out a Term Life Insurance Policy?
No, you cannot cash out a term life insurance policy because it doesn’t have that feature. Only whole life and other types of permanent life insurance offer cash value.
What is the Best Whole Life Insurance?
The best whole life insurance depends on your coverage needs, age, and health. Each company sets its own rates and has its own guidelines, so one company may be a better fit than another. If you’re not sure what the best whole life insurance company is, call us at Final Expense Direct and we’ll help you figure it out and get you approved.
Is Whole Life Better than Term Life Insurance?
Whole life isn’t necessarily better than term life insurance, but it may be better suited to your needs than term life. If you’re a senior, only need a small amount of coverage, have several health issues, want permanent coverage with locked in rates, and don’t want to complete a medical exam, whole life is a better choice than term life insurance.