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Term vs. Whole Life Insurance

Choosing the right life insurance policy is important. Understanding the difference between term and whole life insurance is a valuable part of the decision. At Aflac, we offer a variety of life insurance plans to help meet your specific needs.

According to LIMRA, 52% of Americans reported owning some type of life insurance in January 2023. This included individual life insurance, employer-sponsored coverage, etc.1 Picking the right life insurance policy can greatly impact your retirement plan and your family’s financial security.

What is Term Life Insurance?

When deciding between term or whole life insurance, there are crucial differences to take note of. Like it sounds, term life insurance provides coverage for a set term or specific amount of time. They usually vary between 10 and 30 years long. If the policyholder passes away during that specified period, your beneficiary will receive the payout.

The cost of whole life insurance vs. term varies, but term life insurance usually costs less. It costs less because there is only a payout if the timing aligns. We hope that you outlive your term, but if not, the payout can help provide support for your loved ones.

You are also able to choose your term based on your unique situation, possibly reducing costs in the long run. This choice is popular for young families because of the lower premiums upfront. It can also be a good choice for seniors factoring in their long-term plans.

What is Whole Life Insurance?

When wondering, “should I buy term life insurance or whole life?” there are a few key takeaways. Whole life insurance provides coverage for your entire life cycle. Typically, whole life insurance costs more because it serves as an investment. This investment, otherwise known as the cash value, is able to grow throughout your lifetime tax-free.

When deciding between term or whole life insurance, you should note the following about whole life insurance. The premiums will not change throughout the course of your life and the death benefit is certain. You do not need to choose a term length. Lastly, the cash value will grow in a tax-deferred account at a secured rate. This is a popular choice for those looking to maximize their financial potential.

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Term vs. Whole Life Insurance Pros and Cons

There are a few crucial differences in term and whole life insurance. We want to make it easy for you by breaking those differences down into pros and cons.

  • Term Life Insurance Pros: It’s customizable, specific to your timeline, and usually costs less than whole life insurance.
  • Term Life insurance Cons: If you outlive the term length, your coverage will end and you won’t receive any benefits. You will not be covered your entire lifetime and your policy will not accumulate cash value like an investment account does.
  • Whole Life insurance Pros: The premiums will always be the same amount, the payout is guaranteed (subject to limitations and exclusions), and the value of your plan grows at a constant rate.
  • Whole Life Insurance Cons: You cannot choose the length of the policy and it’s typically more expensive than term life insurance.

Cost of Whole Life Insurance vs. Term Life Insurance

Choosing between whole life and term life insurance depends on your financial goals. We encourage you to determine what kind of financial security you’d like in place throughout your lifetime. This will allow you to assess the costs and the long-term value of term and whole life insurance accurately.

One of the main differences between whole and term life insurance is the cost. The costs of either plan vary depending on age group, gender, and medical history. Even so, whole life insurance tends to have higher premiums than term life insurance. The premiums are higher because the payments are put into an account that accumulates over time. This can provide you more security when the time comes.

Term life insurance usually has lower premiums. If you choose a 30-year term at a lower rate and your timeline is correct, your family can still receive ample security and possibly avoid higher premiums.

Which is Better: Term or Whole Life Insurance?

By now, you’ve read our analysis of whole life versus term life insurance. One isn’t necessarily better than the other, but one can be more suited for your unique needs.

We encourage to take a closer look at the costs and decide how much you are willing to spend on a policy. Considering your dependents and who you aim to support is also a key component. Lastly, you should make sure that there isn’t a better option out there for your investment purposes.

Term and Whole Life Insurance Alternatives

Your permanent life insurance options don’t end here. There are additional alternatives outside of whole and term life insurance.

Universal Life insurance is a great option if you want part of your policy to function as a savings account. Variable Life insurance uses sub-accounts that function similarly to mutual funds. Lastly, Indexed Universal Life Insurance allows you to adjust your premiums to maximize your cash policy’s cash value.

These options are generally only suited for specific financial goals. Most people choose between a term or whole life insurance policy. Aflac can work with you to recommend a plan that best meets your needs.

Alternatives to Term and Whole Life Insurance

If term and whole life insurance aren’t for you, here are some alternative policies to consider:

  • Universal life insurance: This is a permanent policy that offers lifelong coverage. Similar to whole life insurance, this type of policy comes with a cash value component in addition to the death benefit. The cash value grows based on current market rates. Premiums you pay can be adjusted throughout the policy term and can increase or decrease depending on your needs.

  • Guaranteed issue life insurance: This type of life insurance is designed for individuals who may not qualify for traditional life insurance policies due to pre-existing medical conditions or lifestyle choices. These policies require no medical exams, provide immediate coverage at a fixed rate, and come with a small death benefit.

  • Final expense insurance: Final expense insurance is designed to help cover end-of-life costs, such as funeral expenses and hospital bills. This type of policy typically comes with low premiums and a small death benefit. Unlike other types of permanent life insurance, final expense policies are typically available without taking physical exams, but some insurance companies will still ask questions about certain aspects related to your health prior to approving coverage.

What to Consider Before Getting Term or Whole Life Insurance

When deciding whether to get term of whole life insurance, it’s important to consider several factors:

  • Coverage needs: The first step is to determine how much coverage you should get based on your current financial situation. If you only need coverage for a few years while your children are growing up, for example, then term life insurance may be the right choice. But if you want lifetime coverage and the ability to build cash value, then consider whole life insurance.

  • Cash value: When deciding whether to get term or whole life insurance, you should also consider whether you want to build cash value. If you want the ability to build wealth and withdraw or borrow funds as needed, then a whole life policy may be the right choice for you.

  • Costs: Finally, it's smart to consider the costs when deciding which type of policy is right for you. If you’re on a budget and just want to provide coverage for your family, term life plans are often the most cost-effective option. On the other hand, if you're looking for lifelong protection with more investment potential, then whole life insurance may be a better choice.

Ultimately, the type of policy you choose should depend on your individual needs and financial circumstances. Consider discussing all your options with a qualified professional who can help you find the right kind of policy for you.

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