Term Life v Whole of Life, which life insurance solution is better for you?

Term Life Insurance

Benefits:

• Lower premiums when younger
• Choice of term
• Larger death benefit when compared to whole of life for similar premium
• Can be converted to a whole life insurance

Disadvantages:

• Has a set expiry date
• Must re-qualify when applying for a new term in most cases
• 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

Benefits:

• Builds up a cash value
• Has no set expiry date
• Premiums are fixed
• You can take out a loan against it (conditions apply)

Disadvantages:

• More expensive than term life
• Smaller death benefit compared to term life for similar premium

As you can see from the benefits and disadvantages of both solutions, a term-based policy may be more financially viable because of its affordability and flexibility. While it will not build up a cash value over the long-term, a term solution is more likely to yield a larger payout in the event of death during the term of the plan.

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 for younger lives and the increased likelihood of successfully qualifying for additional terms.

To further understand the key information about both of these products, the following are some of the more frequently asked questions about term and whole of life insurance.

FAQ is

When should you purchase 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 or liability
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 of life insurance?

If you require a long-term solution that supports your financial goals.
If you require a more permanent cover without additional future applications.
When you want to plan for your estate liability or mitigate the inheritance tax liability for your beneficiaries or trust.
Want to put in place a plan to cover your final 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 and you have outlived the term policy, your  life insurance coverage will end. At this point, you may have the option of renewing your plan for another set term or converting your policy to a permanent whole of life policy. 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 unless you or your spouse pass away during the term of the plan. 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 of 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 of life insurance and the increase in cash value are some reasons that make 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 or choose not to renew their term life insurance policies when they reach a certain age or financial position where 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 of life or permanent life policy may be the best option for you. While whole of 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 term life 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 remain with the insurance company.

If you have any further questions about term life insurance and whole of life insurance solutions, you are welcome to speak with one of ASN is 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.