As people get older, a common concern is how to ensure that their family will not be burdened financially should anything happen and they pass away. The question is which type of life insurance policy would provide the best policy as well as be available at a reasonable cost. This article will provide comparison between Term life insurance and Whole life insurance that can help you decide which is the better policy for you and your family.

First the Definitions

Term life insurance is a life coverage that provides benefits for a limited period of time. It pays the face value of the policy to the beneficiaries on the death of the insured. It can range from 1-30 years. But the coverage ends when the period ends so, if you live beyond the term for instance, there will be no benefit. It is possible to renew the policy but the premiums increase annually after the term and as you age. There are several types of term insurance: Level term, Annual renewable term and Decreasing term.

Whole life insurance is a combination of having a term life policy and an investment component. The policy builds cash value over time and can also act as a source of emergency funds that you can take out like a loan.

There are 3 types: Traditional whole life insurance, universal and variable. Whole life insurance forces you to save money because not only do you have to pay for the life insurance premium, but you also have to pay.

Premiums

Term life insurance premiums are inexpensive but isn't constant. It increases over time and can usually be more expensive than whole life when renewed after the first term. However, if you buy a "level term" policy, you can lock your premiums for 20 years.

Whole life insurance premiums are generally very expensive especially for older people. If purchased while you are still young it could be a great value because the premiums are constant and never increase over time

Death Benefit

Both policies pay out to the beneficiaries Tax Free upon the death of the insured.

Canceling the Policy

With Term life, if you cancel the policy, there are no penalties but there is also no cash value. It only pays upon the death of the insured.

With permanent/whole life insurance there are penalties if you cancel your policy but you can get the lump sum cash value.

Pros and Other Advantages

Term life insurance

• - It is inexpensive
• - You can add it to a whole life policy for additional coverage
• - Provides good amount of coverage upon death of insured
• - You can also lower your premium by converting to a lower face value

Whole life insurance

• - Premiums are constant and do not increase
• - Also, the face value does not decrease
• - It builds cash value, acts like a savings account
• - You can take a loan out of the built cash value
• - There are also a small number of companies that offer a "10 pay" or a "20 pay" which basically means you can pay up the policy within 10 or 20 years
• - Forces you to save

Cons and Other Disadvantages

Term life insurance

• - Only has a temporary fixed premium. Premiums increase rapidly at the end of the period and can sometimes be more expensive than whole life insurance.
• - You only win upon death during the period of coverage. If you live pass the period, you will lose everything you've paid to the policy.
• - It does not build cash value and you cannot take out loans from it.

Whole life insurance

• - Whole life insurance:
• - Is more expensive especially if you wait until your senior years.
• - The face value cannot be change in the policy.
• - If you do take out a loan against it, it will lower the benefit upon death. The interest on the loan will also decrease your benefit. It is recommended that you keep paying the interest each year.
• - You are required to pay the premium unless you have the 10 pay or 20 pay option.