Term vs Whole Life: which life insurance solution is best for you?
There are numerous things to consider when looking for a life insurance solution that will meet your individual needs. It can be especially confronting when faced with the differences between term-based and whole life insurance solutions.
The variety of options available can leave you asking many questions. What are the pros and cons of either? What happens when a term solution expires? Which one is best suited to your financial situation?
In this article, ASN endeavours to break down the pros and cons for you and answer some of the most frequently asked questions about term and whole life insurance products.
Term Life Insurance
Lower premiums when younger
Larger payouts at death
Can be converted to a whole life insurance
Has a set expiry date
Must re-qualify when applying for a new term
Existing health issues complicate successfully qualifying for a policy
Premiums may increase at the end of a term
Policy accumulates no cash value
Whole Life Insurance
Builds cash value
Premiums are fixed
You can take out a loan against it (conditions apply)
Smaller death benefit
As you can see from the pros and cons of both solutions, a term-based policy may be more financially viable as a result of its flexibility. While it may not build cash value in the long-term, a term solution is more likely to yield a larger payout in the event of death.
For younger families especially, a term-based life insurance policy may also be the smarter choice, with lower premiums due to the reduction in risk and the increased likelihood of successfully qualifying for additional terms.
To further understand key information at about both products, the following are some of the more frequently asked questions about term and life insurance:
When should you buy term life insurance?
When you have a family or dependents whose financial security you need to consider.
If you only require life insurance for a specific amount of time.
If you are not satisfied with existing long-term solutions.
If you have other ongoing financial commitments (e.g., mortgage, loans, tuition, etc.).
Require an affordable solution with decent benefits.
When should you buy whole life insurance?
If you require a long-term solution that supports financial goals.
If you require a more permanent cover without additional applications.
When you want to plan your estate or organize the inheritance for your beneficiaries/trust.
Want to confirm all details and expenses related to your funeral and burial.
What happens to term life insurance at the end of the term?
Once the set term of your policy expires/you have outlived the term policy, you will no longer have life insurance coverage. At this point, you have the option of converting your term policy to a permanent policy or apply for life insurance coverage for a new term. Term life insurance policies are purchased for a set term, anywhere from 5 to 30 years.
Which is better term life or whole life insurance?
Term life insurance plans are usually preferred due to their flexible and affordable nature. As term life insurance policies have no cash value until you or your spouse passes away, the policy has no value until the event of death. The option that is best for you is specific to your personal situation and financial planning.
Are there any benefits to whole life insurance?
The benefits of a whole life insurance policy are in its capacity for long-term coverage. As long as you are paying the policy premiums, your death benefit cannot expire. The longevity of whole life insurance and the increase in cash value are what makes it an appealing solution.
When should you stop term life insurance?
There is no right or wrong answer to this, as it relates to your individual needs and financial situation. In general, some people cancel/choose not to renew their term life insurance policies when they reach an age or financial position that they no longer need to maintain a death benefit for their family. Others may choose to convert to a whole life policy.
Should you convert your term life to whole life?
If you are in a financially stable situation and have the capacity to invest in a long-term life insurance solution, converting your term life insurance to a whole life / permanent life policy may be the best option for you. While whole life insurance does cost more than term life insurance, it will also yield savings for your beneficiaries or could potentially be used as an emergency fund or retirement fund.
What happens to my premiums when the policy expires?
When your specified term ends, your life insurance coverage will expire and payments to the insurance company should be complete. At this point, you would have outlived your policy and the paid premiums will stay with the insurance company.
If you have any further questions about term life insurance and whole life insurance solutions, you are welcome to speak with one of ASN’s international insurance specialists by following the contact form here.
Alternatively, if you are looking for a life insurance, you can request a quote immediately by following the prompts here.
While this information is specifically about local-based products, ASN only offers international life insurance solutions which have similar and different benefits and conditions. If you have any questions about this article or life insurance, you can contact ASN here.