Term vs. Whole Life Insurance

Life insurance policies don't come in a generic, one-size-fits-all format. Rather, insurers offer prospective policyholders an array of life insurance coverage choices to suit their unique needs. The two most popular types of life insurance, term life and whole life, both provide a death benefit but do so in vastly different ways. To determine which coverage works best for your and your family's needs, you'll need to examine the length of your coverage needs, your budget, and how you intend to use your policy. More information on how to choose between whole life insurance and term life insurance follows.

Term Life

The defining characteristic of term life insurance is that it provides a death benefit for a finite amount of time. In other words, the coverage expires once the term of the policy is up. For example, if you purchase a ten-year term policy, your beneficiaries would receive the proceeds of your policy if you died within those ten years. Once the ten years are up, your coverage ceases unless you renew. Term life policies usually come with 10, 15, 20, or 30 year terms. Term life is ideal for those who have only short-term life insurance needs. Because term life is also the most affordable type of life insurance, it is very popular with those who want a significant amount of coverage with reasonable premiums.

Whole Life

Whole life insurance, on the other hand, offers policyholders a lifetime of insurance protection. That is, your beneficiaries will receive the proceeds of your policy no matter when you die as long as you are current on your premiums when you pass. As an added benefit, the premiums of whole life insurance policies do not increase as you age. If you have trouble saving and investing your money, a whole life policy might be a wise option, as it dedicates a portion of your premiums to various securities. The policy then accumulates cash value over time, which you can include in your death benefit or use as a cash loan while you are still alive.

Coverage That Works for You

Determining the coverage that works for you requires you to first look at the length of your life insurance needs. For instance, some policyholders have small children and a mortgage, so they opt for a 20-year term life plan to see them through until their children are grown and their home loan is paid off. Budget concerns will also influence your plan, as term coverage is much cheaper initially, but the premiums rise as you age. Lastly, think about how you plan to use your life insurance. If you want your policy to double as an investment vehicle, whole life is a good choice.