Term Life Insurance vs. Whole Life Insurance
Basis |
Term Life Insurance |
Whole Life Insurance |
---|---|---|
Coverage Duration |
Provides coverage for a specific term (e.g., 10, 20, 30 years) |
Provides coverage for the entire lifetime of the insured |
Premiums |
Generally lower premiums |
Typically higher premiums, but fixed and guaranteed |
Cash Value |
Does not accumulate cash value |
Builds cash value over time, which can be borrowed against or surrendered |
Death Benefit |
Pays out a death benefit if the insured dies during the term |
Pays out a death benefit whenever the insured passes away |
Investment Component |
No investment component |
Includes a savings/investment component |
Flexibility |
Limited flexibility, typically fixed term and coverage amount |
More flexible options for adjusting coverage and accessing cash value |
Policy Loans |
Not applicable |
Can take policy loans against the cash value |
Premium Payments |
Premiums are paid for a specific term |
Premiums are paid throughout the insured’s lifetime |
Cost |
Cheaper upfront cost |
More expensive due to the lifetime coverage and cash value |
Suitability |
Ideal for temporary needs (e.g., income replacement during working years) |
Suitable for long-term financial planning and wealth accumulation |
Tax Implications |
Death benefits are generally tax-free |
Cash value accumulation may have tax implications |