Life insurance is an important consideration for anyone who wants to provide financial security for their loved ones in the event of their death. Two of the most common types of life insurance are whole of life insurance and term life insurance. While both types of insurance can provide financial protection for dependants, they have some key differences.
Whole of life insurance, also known as permanent life insurance, provides coverage for the policyholder’s entire life, as long as the premiums are paid. This type of insurance typically has a higher premium cost, but it also has a cash value component that can accumulate over time. This cash value component can be borrowed against, used to pay premiums, or cashed out. These policies can provide lifelong protection and also have a savings component.
Term life insurance, on the other hand, provides coverage for a specific period of time, such as 10, 20, or 30 years. The premium for term life insurance is generally lower than whole of life insurance, but the coverage ends at the end of the term and the policy does not accumulate cash value. This type of insurance is often chosen by individuals who want to provide financial protection for their family during a specific period of time, such as when their children are still dependent or when a mortgage is outstanding.
Another important difference between whole of life insurance and term life insurance is that whole of life policies typically offer a guaranteed death benefit, while term policies do not. A guaranteed death benefit means that the death benefit will be paid out to the beneficiaries regardless of the policyholder’s age at death, while a non-guaranteed death benefit may not be paid out if the policyholder dies after a certain age.
In summary, Whole of life insurance provides lifelong protection and cash value component, while term life insurance provides coverage for a specific period of time and does not accumulate cash value. Whole of life policies typically offer a guaranteed death benefit, while term policies do not. The decision between the two types of insurance depends on the individual’s needs and goals. It’s important to carefully consider your financial needs, goals and budget when choosing between whole of life and term life insurance.