4 Reasons to Choose Term Over Whole Life Insurance

Life insurance is a very personal investment – what could be more personal than planning for your own death? Couple that with the fact that there are a number of different life insurance options to choose from and you have some very important decisions in front of you.

The type of insurance you decide to invest in is dependent upon a number of different factors – what you’re hoping to accomplish with your investment, your age and health, and the size of your budget, to name a few. Before making a decision, it’s important you understand what your choices are and where those options fit into your unique situation.

Let’s start with a brief overview of what those options are; then we can go into more detail as to why consumers choose one over the other.

The Differences Between Permanent and Term Insurance

Term life insurance, also known as “pure life insurance,” is temporary coverage designed to protect your loved ones should you die prematurely. It is temporary coverage that offers your beneficiaries a safety net for a period of time ranging from one year to thirty years. The policy holds no financial value beyond its death benefit and the policy expires once its defined term is reached.

Permanent life insurance, such as whole life, offers lifelong coverage. While the specifics vary from policy to policy, whole life policies offer policyholders an investment opportunity known as the policy’s cash value. The cash value builds up slowly over time and is tax-deferred, meaning you don’t pay taxes on its earnings while they accumulate. Most policies offer you the opportunity to borrow money against the earnings or surrender the policy for its cash value. You are required to pay back that loan, plus interest – failure to do so will result in a reduction of death benefit. Surrender of the policy means your beneficiaries are no longer protected in the event of your death.

There are a number of reasons why consumers choose term life insurance policies over whole life. While we always recommend that you consult with an experienced insurance agent before making any decisions, we wanted to share the top 4 reasons why many come to this decision.

1) Term Life Insurance is More Affordable

The annual premium for a term life insurance policy is much lower than that of a whole life policy. The term is limited and no cash value (or policy loans) accumulates, lowering the risk for the insurance company.

A healthy, non-smoking female, 30 years of age can purchase a 20-year, $500,000 term life policy for as little as $210 per year. The same policy for a healthy 30-year-old male would run about $239 a year.

A similar whole life policy could cost almost $5,500 a year for men and $4,570 for women, according to our most recent premium estimates. Obviously, the whole life policy has its own set of benefits, but if cost is a factor for you, term life insurance is the most affordable route.

2) Quote Comparisons Are Readily Available Online

The underwriting and simplicity of a term policy make it easy for quotes to be figured and compared from the comfort of your own home. This is a great benefit for consumers who are trying to determine where a new policy will fit into their budget, but it is important to consult with an insurance professional when it’s time to take out a policy.

There are a number of inexpensive riders you’ll want to discuss with your agent before making your final decision. While you might feel these riders aren’t necessary, we’ve seen many instances where customers had to cash in on these extras and were grateful they made the decision to pay a few dollars extra each year.

3) You Can Match the Policy to Your Needs

Term life policies are not only simple to understand and quote, it’s also easy to match the coverage to your needs. Policies typically come in $50,000 increments and you can select the coverage time, ranging anywhere from 1 to 30 years. Insurers offer level-premium term life policies, which means your premium remains the same throughout the life of the policy.

4) Most Term Policies Can be Converted to Permanent if You Change Your Mind

We all know how much life can change in a year; imagine how much it changes over a 30 year period of time. Committing to a term life policy now, however, doesn’t mean you’re stuck with it for its full length. If your financial situation (and needs) change, most term policies have the option to convert to a permanent policy. You’ll want to discuss this option with your insurance agent during the initial buying process. They can help ensure you invest in a policy that offers this option, as well as make you aware of what your permanent policy options will be when you do decide to convert. Just be sure you keep track of the conversion deadline, as some offers end before the policy expiration date.

While both permanent and term life insurance policies fulfill valuable needs for consumers, term life is the overwhelming choice amongst insureds who are looking for temporary financial protection against untimely death. If you’re considering life insurance, it’s important to discuss your options with a licensed insurance professional. They can offer you the tools needed to determine which policy is right for you, how much coverage is necessary, and what length of time would best protect both you and your family.