Whole Life Insurance vs Term Life Insurance: Advantages and Drawbacks

When considering various life insurance policies, the advantages and disadvantages of whole life insurance vs term life insurance should be examined carefully. Both types of policies offer protection for families if something should happen to one of the income earners unexpectedly. However, there are significant differences that may make one type preferable in some cases; here is a general overview of the typical elements of whole life insurance vs term life insurance.

Whole life insurance offers coverage in the event of the policyholder’s death or qualifying disability; it usually is more expensive than comparable term life insurance, and incorporates investments as well as insurance. Most whole life insurance policies accrue value throughout the duration of coverage; this allows consumers who hold the policies over a long period of time to recoup most or all of their premium payments or to borrow against the value of their policy. This is possible because whole life insurance providers invest a portion of premiums in an interest-bearing savings plan or other investment options; this allows them to earn money on the premiums paid and to return a portion of that money to consumers in the form of cash value payments. Thus, whole life insurance policies constitute a form of forced savings, ensuring that money will eventually be on hand for emergencies or other urgent needs. Whole life policies typically feature a level monthly payment that rarely increases; this allows consumers to plan more accurately for future expenses.

Term life coverage offers the same benefits as whole life insurance without the investment element. It is usually designed to cover a pre-specified length of time, and offers no cash value or monetary payout except in the case of death or disability within the period of coverage. Because it is usually less expensive than comparable whole life insurance, many experts believe it is best to purchase term life insurance and to invest the cost difference; however, for many consumers, the availability of additional cash can be an overwhelming temptation to spend, rather than to save. Depending on the level of financial discipline practiced by the consumer, term life insurance can be a low-cost investment in financial security and an excellent alternative to whole life policies.