What’s the Difference Between Term and Whole Insurance?

Fran
Fran Majidi
September 18, 2019

Term life insurance is a type of coverage that is set for a specific period of time. Your beneficiaries are paid out if you die within that period. If you do not die within the fixed period, your policy can be renewed, but it’ll be a more expensive rate because you’re older. Some policies renew automatically at a higher price.

Permanent life insurance covers you for a lifetime. It includes whole life insurance, universal life insurance and variable universal life insurance. Some people use certain kinds of permanent life insurance as a savings account.

Level term life insurance typically covers 10 to 30 years. It is paid out only if the death of the insured occurs within the specified coverage dates.

The death benefit amount and premium amount are fixed. The premium on a level term life policy is higher than a YRT policy. There are options to affix this kind of life insurance to a mortgage loan to pay off the remaining balance after the insured’s death. This type of mortgage loan is advised to people with an interest-only mortgage. Young couples often buy this type of coverage, which is affordable and will ensure the coverage of young children in the event of an untimely death. Get cheap life insurance quotes here.

Whole life insurance is a permanent form of insurance, meaning that unlike Term Life, the coverage period does not end. It’s a lifelong coverage with no need to renew.

This type of coverage also has an investment component to it: the policy’s cash value. The cash value of your policy grows tax deferred and at a guaranteed rate, which is one desirable element of whole life insurance versus term life insurance.

You can always borrow money against the account or cash out the policy, even though you’ll be left with no death benefit.

Whole life insurance is the simplest form of permanent life insurance because the premium remains the same on your policy for as long as you live and you’re guaranteed a death benefit.

Some but not all whole life insurance policies earn dividends which are paid out regularly.

Universal life insurance is a permanent form of life insurance, meaning that there is no end coverage date and no need to renew.

Universal life insurance is less expensive than whole life insurance but has a similar savings and a cash value with interest-earning growth.

The cash value of a universal life insurance policy can grow on a tax deferred basis. You can also transfer money from the cash value to the insurance part any time.

There is a guaranteed interest rate for the cash portion of the policy, so you never have to worry about dropping interest rates that can affect the amount of cash on hand.

Coverage needs can be altered at any given time with universal life insurance, which is why it’s considered the more flexible of the permanent forms of life insurance.

Yearly Renewable Term Life Insurance (YRT). This type of life insurance coverage doesn’t have a specified term and is renewable each year without having to provide proof of insurability each year. With age, premiums become more expensive as time passes.

Decreasing Term Life Insurance. This type of coverage covers anywhere between 1 and 30 years.

This type of coverage offers level (or fixed) payments so there is no increase or decrease in policy price but the payment benefit amount decreases over time.

Many of these types of policies become mortgage life insurance, which affixes itself to the insured’s remaining mortgage on a home. A mortgage life insurance policy is designed to pay off one’s mortgage after the insured has passed.

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