YOU ASK:

What is the difference between term and whole life insurance?

WE ANSWER:

There is a wide range of diverse life insurance policies out there, with new products emerging on a daily basis. Yet, we can still distinguish between two basic categories: permanent life insurance and term life insurance.

The major differences between term and whole life insurance can be summed up as follows:

Whole life insurance is the oldest and most common type of permanent life insurance, which, as its name suggests, offers zero-risk guaranteed protection for your whole life. It has a savings component called cash value which offers investment opportunities during the insured's lifetime.
In comparison, term life insurance provides affordable temporary coverage to people who have short-term insurance needs. Term life policies do not offer any living benefits; they only pay proceeds if the insured dies within the policy term. Neither do they return any of the premiums paid at the end of the policy period.

Characteristics of Term Life Insurance

Term life insurance can be purchased for a period of 1, 5, 10, 15, 20 or 30 years to cover people's short-term needs for protection.
Term life insurance costs are the lowest on the insurance market if the policy is purchased when a person is young. Premium rates increase as the insured gets older, and can reach prohibitively high levels if one wants to renew their term life policy at an advanced age.
Term life insurance does not typically have a cash value component.
Term life insurance is convertible, i.e. it allows the policyholder to convert to permanent life insurance without a physical exam.

Whole Life Characteristics

Whole life insurance provides coverage for life, or until the insured reaches a certain age, such as 95 or 99.
Unlike term life insurance, whole life guarantees that the beneficiary will receive the proceeds.
Whole life premiums are fixed at certain levels and they are not subject to change. They are guaranteed to remain the same even if the insured becomes uninsurable, and are not affected by unfavorable financial conditions.
Whole life insurance provides living benefits in the form of dividends which the insurer will pay if they have had a successful financial performance. Also, part of the premiums accumulates in a cash value account. The policy owner can withdraw, borrow the money or create special-purpose funds.

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