CHICAGO, Jan. 26, 2022 (GLOBE NEWSWIRE) — Life insurance provides loved ones with an extra layer of financial security in the event of the policyholder’s death. To choose the right plan, policyholders should compare the features, costs and benefits of life insurance. This can help them find coverage that will protect their beneficiaries in the event of an unexpected death.
Two of the most well-known types of life insurance policies are term life insurance and whole life insurance. Term life insurance provides policyholders with coverage for a fixed term, while whole life insurance provides policyholders with coverage for life. But the costs of these two types of policies can vary widely, so policyholders should research thoroughly and weigh their options before making a decision. Read on to find out if term or whole life insurance is cheaper and how to compare the two policies.
Is term life insurance or whole life insurance cheaper?
Term life insurance is generally much cheaper than whole life insurance. This is because term life insurance expires after a certain period of time, which reduces 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 benefit from a lower premium on whole life policies if they purchase a plan earlier in life, when they are young and healthy.
How to choose between term insurance and whole life insurance
Cost isn’t the only factor to consider when deciding between term life insurance and whole life insurance. Here are some other factors to consider:
The term of term life insurance policies generally ranges from 10 to 30 years. Meanwhile, whole life insurance offers guaranteed lifetime coverage to offset the higher premiums.
A portion of every whole life insurance policy premium is allocated to a tax-deferred component called cash value, which grows at a fixed rate of interest. Once the insured has accumulated enough cash value, they can withdraw or borrow at a low interest rate without a credit check. If they choose to take out a loan, they can repay it at their leisure, as long as it does not exceed the remaining cash value. If a policyholder surrenders their whole life policy, they may receive the cash value minus the surrender charge.
Keep in mind that term life insurance policies have no cash value component. Premium payments are only for the death benefit beneficiaries will receive if the policyholder dies while the policy is in force.
The bottom line
Whole life insurance is much more expensive than term insurance, but it offers benefits such as lifetime coverage and cash value component. Meanwhile, term life insurance is much cheaper, but does not guarantee lifetime coverage and does not allow the insured to build wealth.
Overall, term life insurance policies may be best suited to someone who needs simple coverage for a set period of time, such as a couple who just had their first child and want to cover them until what he grows up. With term life insurance, policyholders can save money while getting adequate coverage. Meanwhile, someone who wants lifetime coverage might do better with a whole life insurance policy. They won’t have to worry about providing only temporary coverage to their beneficiaries, and they’ll build wealth up to their cash value. Ultimately, potential policyholders should compare the two plans and assess their situation and budget before choosing a policy.
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