What’s the Difference Between Term and Whole Life Insurance?
About one in five people say they don’t have enough life insurance, according to a survey from the Life Insurance Marketing and Research Association (LIMRA). The survey also found that 44% of people, especially younger generations, overestimate the cost of the best life insurance premiums by as much as five times.
If you’re confused about life insurance — and how much coverage you need — we’re here to help.
Breaking Down the Types of Life Insurance
There are two main types of life insurance: term and whole. The Insurance Information Institute states that about 4.3 million people purchased term life insurance policies in 2016, while 6.4 million purchased whole life insurance policies. There are a few important things to know about each one to determine which suits your specific needs.
Choose From Today's Best Term Life Insurance Companies
Ethos
Ethos offers a simple way to buy life insurance directly without the hassle of going through salespeople or agents. It partners with top-rated carriers and uses proprietary software to create a 100% online, 10-minute application process to match you with the right policy. It provides whole and term life insurance policies, and more importantly, doesn’t require any medical exams. Just answer a few health questions online to get started.
AIG Direct
AIG Direct is a leading insurance agency that offers a wide variety of life insurance policies from top-rated carriers. You can choose from term life with term lengths of up to 30 years, whole life, and permanent policies. AIG Direct sells life insurance policies online as well as through appointed agents. You can get a quote online in minutes, but a health exam is required for most policies.
Read our full AIG Direct review.
Ladder
Ladder offers term life insurance issued by multiple insurers in all states and the District of Columbia. U.S. residents ages 20 to 60 can apply for coverage online and get an instant decision. Policies through Ladder are designed to allow users to easily move their coverage amount up and down during their policy’s term.
What Is Term Life Insurance?
Term life insurance is the simplest and most direct form of life insurance coverage. You purchase a policy that remains in place for a set number of years. Most policies are purchased for 30 years, though some can be as short as just a year. If you die during that time, the policy pays a single payment, known as the death benefit, to the person you name as a beneficiary. Most of these insurance policies offer no other benefits, like a cash value component. As a result, they tend to be less expensive than whole life insurance.
There are two primary types of term life insurance. With level term life insurance, during the entire time you have the policy, the benefit (paid out at the time of your death) remains the same. With decreasing term life insurance, the benefit is reduced slowly over the course of the policy — meaning your loved ones will not receive as much if you die in year 29 of your term versus if you died in year five.
The benefits of term life insurance policies include:
They have lower premiums because coverage is temporary and there's no cash value component.
Term life insurance policies are easier to obtain, especially by someone who is healthy and younger.
They provide an adjustment to the amount of benefit based on what you would like to purchase.
Who will benefit the most from term life insurance? Individuals who want to cover specific debts, such as a mortgage loan.
Individuals who only need coverage while their dependents are minors.
Individuals who want a cost-effective policy.
Individuals who can purchase a term life insurance policy (or obtain one) from their employer, though there are benefits to having private life insurance.
People who have other forms of retirement planning in place and are not concerned with estate plans.
Compare the Best Term Life Insurance Companies 2024
But before you choose term life insurance, consider whether whole life insurance is a better fit for you.
What Is Whole Life Insurance?
Whole life insurance, which is also known as permanent life insurance, remains in place for the long haul. Your coverage doesn’t have an end date, as long as you continue to pay your premiums. If you die while the policy is in place, your named beneficiary receives a guaranteed, tax-free death benefit.
Whole life insurance policies also come with a cash-value component that doubles as a type of savings or investment account. You can usually borrow or withdraw money from this account, though any outstanding balances will reduce your death benefit.
As a result of the guaranteed death benefit and cash-value component, whole life policies are generally more complex and more expensive than term life insurance. Still, there are times when this type of insurance might best fit your needs. Here’s a look at the most common forms of whole life insurance.
Traditional Whole Life
With traditional whole life, the premium and the amount of the benefit paid at the end of your death remain level throughout your lifetime. Thus, your costs won’t rise over the life of your policy, unless you borrow against the cash-value component of that policy.
Universal or Adjustable Life
With universal or adjustable life, you have more control. You can increase the amount of your death benefit if you decide to do so. There’s also a secondary component, called the savings vehicle. With each dollar you invest, a portion of those funds are likely to go into an account that earns money for you to access during your lifetime. For example, as that amount grows due to good performance in the market, you may be able to adjust your premiums to be lower as it will pull some of those funds from the account.
Variable Life
Variable life insurance policies have a cash-value component that offers more investment opportunities than standard whole life insurance. With variable life insurance, the underlying investments can be bonds, money market accounts, or stocks. As a result, there’s more risk with these policies.
Choose From Today's Top Whole Life Insurance Companies
Life Insurance Savings Group
Life Insurance Savings is a sales agency that helps individuals find a life insurance policy that fits their situation. An affiliate of SelectQuote, Life Insurance Savings Group gathers your information, sends easily comparable quotes from multiple companies, and helps you through the medical examination, qualification, and confirmation process.
Read our full Life Insurance Savings Group review.
United of Omaha Guaranteed Whole Life Insurance
United of Omaha Guaranteed Whole Life Insurance provides permanent life insurance with varying coverage amounts and set benefits for beneficiaries. Founded in its namesake city in 1926, it has a reputation of nearly 100 years for aiding people in protecting their families. Policy benefits range from $2,000 to $25,000. Benefits are never reduced due to age or health and your rates are locked for your policy’s duration.
Read our full Omaha Guaranteed Whole Life Insurance review.
Fidelity Life
Fidelity Life is a life insurance provider founded in 1896. It offers multiple types of term and whole life insurance, final expense insurance, and a variety of riders to customize your coverage. The application process is quick and easy. Fidelity Life has a permanent life insurance product geared toward older applicants (between 50 and 85 years old). Coverage ranges from $10,000 to $150,000.
Read our full Fidelity Life review.
The benefits of whole life policies include:
A guaranteed, tax-free death benefit for your beneficiaries, so long as you pay your premiums.
A cash-value component that can double as a tax-deferred savings or investment account you can withdraw or borrow money against.
Some policies earn interest or even pay dividends to policyholders.
Who will benefit the most from whole life insurance?
Individuals with dependents who need lifelong care.
High-net worth individuals with complex estate planning needs. Individuals looking for permanent protection.
Individuals who wish to leave behind the benefit for specific goals, such as funding an estate plan or covering a loved one’s college education.
It’s important to work closely with your insurance agent before making a decision about any whole life policy. Many have larger fees and can be a bit more tricky to manage than term life insurance.
Compare the Best Whole Life Insurance Companies 2024
Choosing the Right Life Insurance for You
When it comes to life insurance, there are a few things to consider. First, purchasing life insurance at a young age is going to cost less than waiting to do so. For those who are looking at pricing carefully, also consider that any diagnosis of illness could reduce your access or increase your coverage costs.
In addition, you can obtain life insurance for your specific needs — for example, covering your dependent children, or even using life insurance funds to care for your pet after your death. Whichever plan you pick, it is important to have a policy in place to adequately protect your family.
Work closely with your agent to talk about your individual goals and any specific must-haves for your life insurance coverage. Knowing the basics about the different types of coverage will help you make the best decision.
Learn more about the leading life insurance providers and compare their policies to find the one that will protect you and your loved ones.
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