Which Is Better? Both.
The interminable debate as to which is better – whole life or term life insurance – is actually quite useless. They are both excellent products that deliver the same good results.
The classic debate should be modified to include a discussion about what conditions, situations, and business or life events indicate one type of protection or the other.
Within the two primary categories of life insurance, there are a multitude of variations targeted at different individuals, groups, and situations. These modifications can often be tailored to appear to be unique products made just for you.
Both whole life and term life can be tailored to be the best choice in your individual situation. If properly designed, you will enjoy both short- and long-term protection for your business and/or family.
What Are the Primary Differences and Similarities Between Whole Life and Term Life Insurance?
It is important to understand the basic differences and similarities between term and whole life insurance to seek out the best options for your needs. The basics are not particularly complicated or obtuse. The complexity appears when an expert tailors a program especially for you. First, the similarities:
- Both term and whole life insurance policies will pay your beneficiaries an amount of money when you pass away.
- Both products can be adjusted at different points of your life to reflect your needs at the time. For instance, when you’re single, one amount may be appropriate. This initial amount may become insufficient if you marry and have children. You typically have the ability to increase or decrease your level of protection based on these and other life changing conditions.
- Both whole life and term life programs typically adjust your annual premiums (cost) based on your age and assumed state of health.
The primary differences include:
- Term life insurance offers pure protection, much like an auto or homeowners insurance policy. You can choose fixed term or other options, like renewable, guaranteed renewable, graduated, declining (useful when insuring your mortgage balance) or possibly other choices.
- Whole life insurance has a savings account feature. As you continue to pay your premiums on time, your "account" grows, earns interest (which is often tax deferred), provides a borrowing source if you need one, and can deliver money or income to you while you’re still alive.
- Term life insurance can be effectively structured to serve as a "buyout option" for certain business ownership structures, should one partner or important stockholder die.
- Whole life insurance can be structured to concentrate on growth of principle, like a savings account or investment product, providing some tax deferral benefits and a structured income at retirement. Part of your premiums will be allocated to pure life insurance protection while the remainder will earn insurance company dividends (like interest).
When Whole Life Insurance Is a Good Choice
When you want to create a diverse retirement or investment portfolio, you might make some whole life insurance a component. It offers life insurance protection while also earning dividends and providing account growth.
If you’re a younger person, your premiums (for the insurance portion) should be low and your fund account, if you leave it alone, can grow impressively as you begin to enjoy the "compounding" factor, which, by earning "interest on interest," can grow your account balance without additional investment.
When Term Life Insurance Is a Good Choice
If you are no longer classified as a "younger person," have no need for a stable, growth account balance, are in a partnership or corporation with few stockholders, all of whom participate in managing the business, or merely want to add more life insurance protection without disturbing other coverage, term life insurance is a good choice.
As you can see, there is no best product for all situations. At different points of your life, changes in responsibilities, with some business arrangements, your financial situation, or your age and health status, whole or term life insurance will become the best choice when compared to the other option.
Be sure to check out the financial condition of any life insurance company that offers products you like. Using the Internet, libraries, or an expert, determine that companies you consider have good financial ratings.
Just as you wouldn’t deposit your life savings in a bank that you knew could fail in the future, you shouldn’t purchase term or whole life insurance in a company that might not be there when you need it.
See also: How much life insurance do I need?
