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Home > Blog > Whole vs. Term Life Insurance
WEDNESDAY, NOVEMBER 22, 2017

Whole vs. Term Life Insurance

As the holidays draw near and you shop for loved ones on your list, it's important to shop for yourself, too.

Life insurance isn't just important - it's essential - and there are some important considerations when weighing the benefits of whole vs. term life insurance:

Term life insurance, defined

Term life insurance policies are designed to provide protection for your family in case of your death, for a specified term that's stated in the policy (for example, 20 or 30 years). Aside from the benefits payable upon death, there are generally no other benefits included.

When the policy reaches maturity, the coverage ends and you stop paying premiums. Some term life policies will allow you to qualify automatically for a new policy after expiration -- you won’t have to take another medical exam, but your premiums will most likely increase.

Whole life insurance

Whole life insurance costs more, but is a permanent form of insurance with an investment component. As long as you pay the premiums, coverage generally stays in effect for your entire life. A portion of your premiums goes to cover death benefit obligations, while the rest is placed in some form of investment that builds cash value.

Switching policy plans

As time goes on, your life insurance needs may change to make a whole life policy more suited to your situation. For example, perhaps you were initially only able to afford a term policy, but can now pay for a more expensive whole plan. Or perhaps you're planning for the future, and like the greater coverage offered in a whole policy.

To be able to switch, your term policy must be a convertible policy. Many term policies are, but it’s important to verify this with your insurer. Convertible policies generally have a limit on when they can be converted, driven by your age or the percentage of your policy remaining.

From a pure economic standpoint, if you plan to convert from term to whole life, it makes sense to do so early in the policy. Premiums for a whole life policy will increase as you age. As always, this is a discussion you need to have with your insurance agent. Make sure that you clearly define what you want out of a life insurance policy, and consider both the economic factors and risk/safety factors with all of your options.

Source: Moneytips, Converting from Term to Whole Life Insurance

Photo credit: Flickr/Markus<Fin>Hametner

Posted 11:00 AM

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