3 Key Differences between Whole and Term Life Insurance

Making the right decision regarding which insurance plan to choose can get quite confusing at times. If this is your first time coming across the terms such as whole and term life insurance, we’ve created this article to clear up at least some of the confusion. We’ve highlighted the main 3 differences between them. You’ll quickly be able to see what each of them is about and make your decision accordingly. To help you do that, let’s look at 3 key differences between whole and term life insurance.

3 Key Differences between Whole and Term Life Insurance
3 Key Differences between Whole and Term Life Insurance

1. Term insurance is more affordable, but only lasts a certain amount of time

Consequently, most people would never get any benefits from term insurance. But they will likely outlive the term which they’re insured for. However, it’s the cheaper alternative, which could make quite a substantial difference to some. In certain cases, whole life insurance can be up to 10 times more expensive than term insurance.

2. Term insurance is less complicated than life insurance, but there’s no value attached to it

In essence, term insurance is suitable for those who prefer to keep it simple. By using a term insurance premium calculator, you simply enter a couple of variables (with one of them being your age). The calculator will churn out a free quote and send it to you via email.

At this point, you have the option of choosing between guaranteed level term life insurance (level payment) and annual renewable. The latter insurance must be renewed periodically. These are best for short-term periods, since they start on the cheaper end and get more expensive as time goes on.

3. You can cancel a term insurance policy at any time without losing any value

In technical terms, whole life insurance is much more complicated compared to term insurance. However, it has certain perks that you don’t get with the latter. While you can cancel whole life insurance and get some money back, it’s important to note that you won’t get back as much as what you invested. Still, it’s money you can spend in a dire emergency.

This is referred to as surrender fee (or cancellation penalty). You also have the freedom to cancel term insurance at any time. Just know that once it’s no longer valid or simply expires, you’re not covered anymore.

Which one should you choose?

Term insurance is best suited for people who only need to get insured for a certain time period. That might include situations like while they’re paying off the mortgage or raising the kids. It’s also a great for deal-hunters, given the fact it’s cheaper in comparison. Also, pay attention to the fact that you can easily convert most term insurance plans to life insurance later on if you so choose. That should be a factor in your decision-making process.

Whole life insurance, on the other hand, is geared towards those who want to ensure that their kids are going to be covered no matter what happens to the parents. This is especially important if they have special needs. That may mean they have a much harder time taking care of themselves in general. And, in some cases, they may not be capable of it at all.

Conclusion

In the end, knowing which type of insurance to go for, boils down to your personal preferences and needs. With the right amount of research, you can enter the agreement with confidence. You can know that you’re the most qualified individual to make the final call.

About AEGON Life

A joint venture between AEGON – world’s leading financial services and Bennett, Coleman & Company – India’s leading media house. AEGON Life Insurance launched its pan-India operations in July 2008. Armed with a vision to be the most recommended new age life insurance Company, AEGON Life adopts the power of global expertise by leveraging digital platforms to bring transparent solutions, and to prioritize customer needs. Our financial planning and investment solutions include term life insurance plans, pension plans, unit-linked insurance plans (ULIPs), health insurance plans, child education plans, and more.

( Photo by investmentzen )

3 Responses to 3 Key Differences between Whole and Term Life Insurance

  1. I just within the last five years evaluated my life insurances and in doing so realized I had to convert some of the insurance into whole life. You need to ask these questions very directly as the insurance carriers tend to ignore you because doing changes from term life to a whole life means they have to actually pay out the insurance. Like any other insurance policy (health, auto, etc) consumers need to be aware of what they are signing up for. I am in the process of getting ready to find an elderly lawyer to setup paperwork for an end of life preliminary (just in case), when did this review. Lucky for me, I only had to change over one and because I had it so long, the conversion from term to whole was easy but the cost difference was doubled. I just wish I had gotten a better explanation when I started my policy, because the younger you are at the start, the lower the cost. I think in hindsight that the reason I even had a term life policy was I was concerned about leaving something for my children just in case, I died while working, they would get the full payout, as in accidental death.
    What makes term life so attractive is the low cost for supposed payout but you really need to look at the long-term end of this policy because the wording in those tiny print part of the policy has limitations on term limits. I had questions about this when I noticed the age limitations ( up to age 85) just in case I live past that date what would happen. The one policy, that I had to convert would not payout after that age.
    Another problem with life insurance is the lack of you the payee to contact the insurance company for a question, especially if they have made changes in corporate umbrella ownership. I had to stop payment (temporally) for them to initiate contact for me to get in touch with them and it took them 3 months to find my policy because I had it for such a long time. They like to hope you won’t try to contact them (again a tactic to avoid paying out policy) I now have online access and copies of policies. The policy has reached to point of gaining interest beyond the full value.
    I am sorry to have rambled about this but my point is that this purchase (which should be considered a necessarily needed expense) should be done by getting all the information up front and the only way to get this information is to question everything and ask for all information. Don’t be pressured into a policy coverage without doing your due diligence.

  2. Hi Maria Rose – You’re raising good points. A lot of the problem with life insurance today is that most of us buy cheap term on the internet or through the mail. We’re looking for the lowest premium, as if that’s the only factor that matters. The cheap policies however are no frills policies. They’re usually nothing but term, with no conversion options. So as you get older, you’re just paying higher premiums, until as you say, you hit 85 and they terminate the plan. Thousands in premiums are lost forever.

    But as I see it, you’re greatest need for life insurance is when you have dependent kids. After that, the need declines steadily. If I make it to 85, and I doubt I will, I’ll have nothing but a burial policy, if I’ll even have that.

    I heard something both comical and profound about life insurance some years back. When you buy life insurance, you’re betting you’re going to die during the term. The life insurance company is betting you won’t. If you pay $1,000 per year for a policy for 30 years, the insurance company collects $30,000 plus interest. If you don’t die within that time, and the policy terminates, it’s a complete win for the company. If you die, your beneficiaries collect the death benefit. But you’re still dead!

    Moral of the story: You don’t and can’t “win” when it comes to life insurance. That said, it’s totally necessary.

  3. The trick is to work against the insurance companies. The one I converted to a whole life from a term life was based originally based on the insurance company figuring they would never have to pay, It was a Metlife insurance policy offered by my bank because I had direct deposit with them. ( You know how they love to sell you extra stuff. When my job ended, I got a notice from the insurance company about the policy and I meet with a representative of the company and told him of what I wanted the policy for (like you a funeral burial cost coverage). I held firm to a set amount despite pressure to upsell me. There’s no term limit on the age, just limited coverage for the first two years, I guess to make sure they get full cost of the policy because, after that time period, premiums are more than total of coverage and policy begins to earn interest. I don’t have big policies just enough to cover at least at present a full funeral with all the details if having a coffin burial, which is the higher cost of a funeral.

Leave a reply