Choosing Term vs. Whole Life Insurance
Term vs. whole life insurance is often the very first major decision that faces someone shopping for life insurance. Many people have heard of these insurance policies but have only a surface-level understanding of how they work. Not to worry, choosing term vs. whole life insurance isn't as complicated as it sounds, and although a blanket recommendation is impossible without knowing personal circumstances and priorities, here's what you need to know about these two types of life insurance policies, ahead of talking to a life insurance agent who will help you make a final purchasing decision.
The Three Main Factors in Choosing Term vs. Whole Life Insurance
- Dollars and Cents: As part of the premiums are "set aside" to accrue a cash value for the policy, whole life insurance is naturally more expensive than term life insurance. The real question for those people looking for life insurance is which life insurance policy returns the greatest value. Nearly any financial advisor worth his or her salt will tell you to purchase term life insurance and invest the difference in premiums. In fact, although the cash value of a whole life insurance may eventually exceed the amount of premiums put into the policy, the poor returns and policy structure makes it illegal to sell whole life insurance as an investment. The one legitimate way to view whole life insurance as an investment vehicle is to determine that you don't have the discipline to set aside a portion of your salary on your own. It's also important to note that the longer you hold a life insurance policy, the smaller this discrepancy becomes. If you determine your retirement plan and savings will require the financial protection of life insurance for only 10 years, whole life insurance becomes an even worse choice. If, on the other hand, you foresee needing life insurance for 20 years or more, whole life insurance becomes a more viable option with lasting value.
- Peace of Mind: If your top priority is dollar-for-dollar insurance value, term life is the way to go, but whole life insurance has its own trump card in peace of mind. Most whole life insurance policies have both guaranteed cash value and, if investment returns allow, supplemental dividends. But it's this guaranteed cash value that attracts many life insurance customers. After all, people enticed by the prospect of higher return rates can end up losing money toward their savings when the market takes a dive. And let's face it: the prospects look dim for financial reform legislation to prevent another collapse in the financial markets. Other people find peace of mind in the fact that given the likelihood that they don't meet an early demise, their policy doesn't turn into wasted money. Finally, if peace of mind is an issue, but you're still swayed by the financial value of term life insurance, make sure you buy a term life policy with a guaranteed renewal option, so you can extend your term life insurance policy regardless of any illnesses or conditions that you may contract in the intervening years.
- Policy Guarantees/Versatility: Both policies have certain guarantees and built-in versatility, as well as limitations. Along with the aforementioned cash values and guaranteed renewals, there are likely to be several possible policy options that will create added guarantees or versatility. Beware, however, that some guarantees will limit versatility and vice versa. For example, guaranteed life insurance, which doesn't require a medical exam, is possible with both term and whole life insurance policies, but you need to read the fine print. Despite the convenience of forgoing a medical exam, policies benefits and costs are often better with the extra step. Whole life insurance policies with no medical exam frequently have exclusions that limit death benefits and the qualifications for receiving these benefits. Other considerations include: Do you want to pay higher premiums upfront to maintain consistent premiums throughout the policy term, or do you want to pay escalating premiums that reflect an increasing mortality risk? Do you want a policy that covers 1) death-only, 2) death and significant injury, or 3) death, significant injury, and extended unemployment/hardship?
Term vs. Whole Life Insurance: Finding Quotes
Without the right tools, finding quotes for term vs. whole life insurance would be twice as hard as shopping for a specific life insurance policy. Fortunately, NetQuote has you covered. By taking just a few minutes to fill out a very basic online form, you will be matched to several insurance companies that offer coverage in your area. But we also give you the option of stating that you're not yet sure if you want term or whole life insurance, allowing you to shop for both simultaneously. Better yet, you can talk to insurance agents and review quotes and policy details from the comfort of your own home, taking a large chunk of stress out of an otherwise headache-filled process.