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Len Penzo dot Com

The offbeat personal finance blog for responsible people.

The Difference Between Whole and Term Life Insurance

By Sabado Domingo

Smart financial planning involves taking the time to make sure that the family’s assets are maximized to their fullest extent and protected. One of the ways that you can make sure that your family is protected in the event of an emergency is by purchasing a life insurance policy. Life insurance will provide coverage and help to prevent financial hardship for the surviving family members.

Let’s take a look at the two most common types of life insurance:

Term Life Insurance

Term life insurance is the easiest form of life insurance to get. Term life insurance can be purchased from any major life insurance carrier and can last for as short as a year or for 30 years. It is up to the policyholder and the insurance carrier to decide on the term of the policy. One of the reasons why term insurance is so popular is because it is so affordable compared to other life insurance policies. Term insurance is the cheapest insurance that you can get since it does eventually expire at some point and time, and benefits are only paid if the insured dies before the term of the policy is up. Term insurance can get more costly if you need to buy a policy at an older age.

Whole Life Insurance

Whole life insurance is a more expensive version of life insurance but it comes with a whole lot more benefits. Whole life insurance can be more expensive when you are younger but can also cost you less as you get older. One of the big advantages of whole life insurance is the fact that it comes with a guaranteed death benefit and the policy also has a cash value. You can borrow against the policy or sell the policy based on the cash value built up. This keeps you from losing all of your money if you choose to let the policy lapse. Then again, if you are looking to cut costs and/or aren’t concerned about having a permanent policy, you may want to avoid whole life insurance policies altogether.

In the end, choosing the best insurance policy for you will depend upon your budget and your needs.

Photo Credit: Phillie Casablanca

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12 Comments September 21, 2016

Comments

  1. 1

    DC says

    If you are good at managing your money and saving for retirement and other life expenses, then the strategy suggested by Consumer Reports is to buy term life insurance when you are youngish (20’s, 30’s) to cover your loved ones if you die unexpectedly when you have relatively little savings.

    As you approach retirement age (50’s, 60’s), life insurance becomes less important — you have that nest egg saved up — and can drop your term policies when they become too expensive to carry.

    Reply
    • 2

      Len Penzo says

      Agreed, DC. It is my opinion that life insurance is for the young only — to provide for a young family in case of an unexpected/early death. Once the kids are out of the house and on their own, it becomes much less important. I’ve carried term life for since I was 22. It is a 30 year policy, and will expire in 5 years. I will not get any additional life insurance after that, as my last kid will be graduating from high school and it won’t be needed anymore.

      Reply
      • 3

        DC says

        Ah, but then there is college. When my own term life policy came up, the company offered a renewal at 10, 20, or 30 years. Like you, my original plan was to not renew, but in the end I decided to go with the 10 year extension – the cheapest option – which carries me into my mid-60’s.

        My thinking is, if I kick it, the payout will be a better deal than student slave loans.

        Reply
  2. 4

    Sarah says

    You can learn pretty much all you need to know by reading: https://www.tiaa-cref.org/public/products-services/tclife-insurance/learn-more

    I just read it and feel like I could even sell life insurance now!

    Reply
  3. 5

    Millennial Moola says

    Term is literally like 1/10th the cost of whole life. It’s unreal that anyone would want to use whole life in today’s interest rate environment. I just don’t get it

    Reply

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