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In general, term life insurance means a policy with a specific end date. For example, you could buy 20 years of term life insurance, and that means if you were to pass away in the next 20 years, your beneficiaries would receive the money from your policy. However, after the 20 years, you stop paying monthly premiums and your beneficiaries are no longer entitled to these benefits should you pass away.
Whole life insurance, on the other hand, is designed to last one’s entire lifetime. As you pay into monthly premiums your whole life, cash accumulates, and when you pass away, your beneficiaries are automatically entitled to the money agreed to by your plan.
Term life insurance allows for a way to save on life insurance if they only need it for a specific circumstance. For example, Someone who is purchasing coverage for their children who is assuming their children will become independent adults in their 20s might choose a 20- or 30-year term life insurance plan.
Then, as the children begin making their own money the parent will go off the life insurance plan and no longer have to pay premiums, but their vulnerable years when they are too young to work for themselves are still covered.
Some companies will allow you to convert your term life insurance policy to a whole life insurance policy in certain cases.
Whole life insurance is more expensive, but also a sure thing—the beneficiaries will receive something at the time of death if all payments have been made. Whole life insurance is more of a true investment than term life insurance, and it can gain value over time. Whole life insurance can in some cases be borrowed from for large purchases as cash value that accumulates later in life.
However, these cash value benefits generally take about 12 to 15 years to build value. People with many years left to live are more likely to benefit from whole life insurance, since its biggest additional benefits take many years to build. Term life insurance is more of a simple calculation for death benefits, while whole life insurance can in some cases offer additional benefits even though it's more expensive on a monthly basis.
Term vs whole life insurance is a question many new buyers ask themselves when shopping around for policies. While everyone’s life insurance needs are individual, in general, you should ask yourself if you need life insurance only for a specific circumstance, such as death during your working years while supporting a spouse, or if you want a guaranteed payout at the time of death.
Whole life insurance is more of a true investment in the long term but costs more in monthly premiums than term life insurance, while term life insurance has a built-in end point. This means it costs less, and premiums end when the term is up, but the coverage also ends at that point.
