The decision to purchase a life insurance policy is important and personal. It can also be confusing, as there are various types of insurance to choose from. Most of the available policies fall into two categories: whole life and term life insurance. Understanding the key differences between the two types of insurance can help you make a more informed decision when shopping for life insurance. Let’s learn more about each type of life insurance and the main differences between the two.
What Is Whole Life Insurance?
Whole life insurance is a type of policy that lasts for the remainder of your life once you’ve enrolled—your policy won’t expire unless you stop paying it. Whole life insurance is also known as permanent life insurance, and examples of this type of policy include universal or variable life insurance. Ultimately, these types of policies provide lifetime coverage and also build a cash value that may be able to be borrowed against or withdrawn.
What Is Term Life Insurance?
Term life insurance provides coverage for a set number of years, such as 15 or 30, which is referred to as the policy’s term. You’re insured throughout this period of time if you continue to pay your premium or until your policy term ends. You may stop paying your premium if you no longer need protection, and your policy pays out if you die during your term.
Differences Between Whole vs. Term Life Insurance
Now that you know the basics of both types of insurance, it’s time to dive into the core differences between the two.
· Length of coverage—One of the key differences between term and whole life insurance lies within the length of coverage provided by each policy. Term life policies only provide coverage for the length of the term you’ve selected, while whole life insurance provides coverage for your lifetime.
· Policy costs—Another key difference between term and whole life insurance is how much your premium payments may be. Term life insurance policies tend to be more affordable than whole life insurance policies in terms of premiums.
· Premium stability—Similarly to the difference in overall premium costs between the two policy types, there’s a difference in premium stability. With a whole life insurance policy, your premium is typically locked in when you first enroll in your policy. A term life insurance policy locks in your premium for the duration of the term, but if that term expires and you need to renew your policy, your premiums may increase as it generally costs more to get life insurance the older you get.
· Cash value—Finally, the two types of insurance differ in whether there is a cash-value savings component of the policy. A whole life insurance policy builds up a cash value throughout the policy’s lifetime that you may borrow against or withdraw. However, a term life policy offers no cash-value savings opportunities.
There may be other differences between the two types of insurance policies that you will need to consider in regard to your personal situation. An Active Insurance agent can work with you to find the most appropriate policy for you.
How to Get Life Insurance
If you want to learn more about term or whole life insurance, or you want to start the process of getting a policy, we’re here to help. With offices in Ann Arbor and Brighton, Michigan, our Active Insurance team can help you with your policy decision. Call our Ann Arbor office at 734-327-5970 or our Brighton office at 810-225-8977 to discuss if whole life or term life coverage may meet your needs and budget.
This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.