CHICAGO, January 26, 2022 (Newswire.com) - Life insurance provides loved ones with an added layer of financial security in case the policyholder dies. To choose the right plan, policyholders should compare life insurance features, costs, and benefits. This can help them find coverage that will protect their beneficiaries in the event of their unexpected passing.
Two of the most well-known types of life insurance policies are term and whole life insurance. Term life insurance offers policyholders coverage for a specific length of time, while whole life insurance provides policyholders with lifetime coverage. But the costs of these two types of policies can vary greatly, so policyholders should do thorough research and weigh their options before making a decision. Read on to find out whether term or whole life insurance is cheaper and how to compare the two policies.
Is term life or whole life insurance cheaper?
Term life insurance is typically much cheaper than whole life insurance. This is because term life insurance expires after a certain timeframe, reducing the insurer's risk of paying out a death benefit. Since whole life insurance never expires, the insurer charges more in order to pay out the guaranteed death benefit later. That said, life insurance customers can lock in a lower premium on whole life policies if they get a plan earlier in life when they're young and healthy.
How to choose between term and whole life insurance
Cost isn't the only consideration when deciding between term and whole life insurance. Here are a few other factors to look at:
Term life insurance policy lengths generally range from 10 to 30 years. Meanwhile, whole life insurance offers guaranteed lifetime coverage to offset the higher premiums.
Part of each whole life policy premium goes into a tax-deferred component called the cash value, which grows at a fixed interest rate. Once the policyholder has built up enough cash value, they can withdraw from it or borrow against it at a low interest rate with no credit check. If they choose to take out a loan, they can repay it at their leisure, as long as it doesn't grow larger than the remaining cash value. If a policyholder surrenders their whole life policy, they can receive the cash value minus surrender charges.
Keep in mind that term life insurance policies have no cash value component. The premium payments only go toward the death benefit that the beneficiaries will receive if the policyholder passes away while the policy is in force.
The bottom line
Whole life insurance costs much more than term insurance, but it offers benefits like lifetime coverage and the cash value component. Meanwhile, term life insurance is much cheaper but doesn't guarantee coverage for life or let the policyholder build wealth.
Overall, term life policies may work best for someone who needs simple coverage for a defined period, like a couple that just had their first child and wants to cover them until they grow up. With term life insurance, policyholders can save money and still get adequate coverage. Meanwhile, someone who wants lifetime coverage might do better with a whole life policy. They won't have to worry about only giving their beneficiaries temporary coverage, and they'll build wealth within their cash value. Ultimately, prospective policyholders should compare both plans and evaluate their circumstances and budget before picking a policy.
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Source: Fidelity Life