What is the Difference Between Term and Whole Life Insurance?

Here, at Advisors Insurance Brokers (AIB) a common question we are asked is, “What is the difference between term and whole life insurance?”

This is a really great question if you’re trying to determine the best option that will help protect you and your family in the long term.

A lot of time, people understand that life insurance will help their beneficiaries in case they pass away. However, when it comes to the technicalities of term vs. whole life insurance, people are not familiar with the specific differences and benefits to each life insurance policy.

In this article, we’ll break down how life insurance works and which option will be the best for your family’s financial future.

How Life Insurance Works

In 2020, 54% of all people in the United States has some life insurance ownership, according to LIMRA’s 2020 Insurance Barometer Study.

So, how does that benefit them?

The ultimate goal of life insurance is to protect your loved ones by providing them with the financial support they may need if something happens to you. Life insurance is a common asset that people use within their long-term financial planning. Your beneficiaries can use these funds to help cover your mortgage payments to everyday bills to funding your child’s college education.

Depending on the policy you take out, there are different ways beneficiaries could receive a life insurance payout, from lump-sum payments to retained asset accounts.

Now, that you know the basics, let’s get more into the specifics of the differences between term and whole life insurance.

What is Term Life Insurance?

Like the name suggests, a term life insurance policy lasts a specific term or period of time. Usually, the term is from ten to thirty years. Sometimes, you’ll hear term life insurance be referred to as “pure life insurance.” This is because, unlike whole life insurance, there’s no cash value to the policy. It’s solely designed to give your beneficiaries a payout if you pass away during the term.

When taking out this policy, it’s key to check if your family’s needs change before the term expires. This way you have the proper safety nets in place.

What is Whole Life Insurance?

Whole life insurance is different from term life insurance because it’s permanent life insurance. It lasts your entire life, as long as you manage to pay the premiums. It also has a cash value component that term life insurance does not.

There are a number of benefits to holding this policy. Some of the most frequent uses include borrowing against your policy in the form of loans or withdrawals, premium payments, and cash to supplement retirement.

There are other permanent life insurance policies available. However, this one is the simplest.

What Policy Will Best Protect Me & My Family?

As with everything, there are pros and cons to each life insurance option. So, when you ask yourself “What is the difference between term and whole life insurance,” you need to go one step further and determine what option best suits your family’s financial needs.

The biggest difference between the two is that whole life insurance provides lifelong coverage with a cash value component. This added benefit makes a whole life policy more expensive than a term life insurance policy.

The two things the policies share in common are a guaranteed death benefit and accelerated death benefit. Yet, you’ll find whole life insurance has a higher initial premium, which stays the same over time. It also requires a health screening, and it can be eligible for company dividends and used for estate planning.

On the other hand, term life insurance will have a low initial premium, but the premium over time may increase. It also is not eligible for company dividends, used for estate planning, and, in most cases, may require a health exam depending on the amount taken out.

Have Additional Questions: Contact AIB

Providing you with the best life insurance options for you and your family is our mission. If you have questions about whether a term or whole life insurance policy would work best for your financial goals, contact us today.

We’ll walk you though the life insurance products that will best fit your lifestyle, now and for the future.


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