When To Choose Term Life Over Whole Life Insurance

Term life insurance also implies what its name says—it is insurance coverage that is only valid for a certain period of time as outlined in the policy. Whole life insurance implies what its name says—it is insurance coverage for the duration of one’s life and inevitably pays out upon one’s death. Only approximately two per cent of term life insurance policies pay out the death benefits—making it more lucrative for the insurance company and cheaper for those looking for this type of insurance.

The decision that people who want insurance have to make can be a difficult one. You should start with asking yourself the question: “Why do I need life insurance at all?”

If you have young children and a spouse who doesn’t have the earning potential to get your children through college, then term life insurance is probably the best answer for you. If you work in a dangerous environment where death is a likely prospect, then term life insurance is your better answer as opposed to whole life insurance.

For families with young children, the need for income lessens after the children are through college—no longer do you have to worry about the costs of education once they are finished in school.

Working in a dangerous environment, where you may regularly face the concept of work place death, is also a short term life insurance need and suitable for term life insurance perhaps for only five years until you change job positions or move up the corporate ladder into a less dangerous position.

Term life insurance offers some flexibility that whole life insurance does not. Term life insurance is considerably less expensive than whole life insurance and for those with only short term needs for life insurance is a much better bet. It’s true, whole life insurance is a guaranteed payout at the end—essentially a savings account that matures and is paid to a beneficiary when you die. By the time it pays out, you will have paid the insurance company the amount of the death benefit and then some. With term life insurance, that is not the case at all—you will have only paid a fraction of the death benefit payout during your term of the policy. If it matures (you pass away), your beneficiary receives the death benefit which will total a great deal more money than you paid in premiums.

Both term life and whole life insurance policies give us a safety net—the knowledge that if or when we die, our loved ones will not be left stranded with nothing. It is our way of taking care of them, even after death. The ultimate savings on a whole life insurance policy may not prove to be worth it if you compare it to other savings programs that are available. With term life insurance, you are paying money to an insurance company for a product that you may never use or see the benefit from for your family.

If you have less money than more to spend on an insurance policy, term life insurance is the way to go. If you have an immediate, short term need for life insurance, then term life insurance is for you and whole life would be a waste of your time and money.