When To Choose Whole Life Insurance Over Term Life

Whole life insurance is exactly what its name implies, insurance that covers your whole life with an expected payout at the termination of the policy (when you die). It is inevitable that a whole life insurance policy will pay out, every one eventually dies. Likewise, term life insurance is only valid for a specific term as outlined in the policy, usually one to 30 years. It is a fact that only two per cent of term life insurance policies actually pay the death benefit.

It is true…term life insurance is much less expensive than whole life insurance. However, you could be paying for a product you will never see benefit from—your family will only be paid the death benefit if you die while holding term life insurance coverage. With whole life insurance, you are guaranteed that your family will be taken care of, regardless of when you die.

Whole life insurance has its place as does term life insurance. If your need for life insurance and a death benefit payout is relatively short term, then term life insurance is for you and whole life insurance is really a waste of your time and money. Short term need could be defined as a safety net for your children and spouse to get the kids through college, pay off the mortgage and bills in the event of your early death. Once the kids are out of college and the house is paid for—the need for life insurance has significantly decreased. If you work in a dangerous environment, chances are you are not going to work there into old age—you will eventually change jobs or move up the ladder into a less dangerous position. Again, short term need requires term life insurance and a short term policy.

However, if you have someone that you will inevitably support for the rest of your life, such as a spouse who has never worked or a dependent who is handicapped that requires your attention and financial backing—these are reasons you should look into whole life insurance. Regardless, when you die, these people require your ongoing financial support. You can look at whole life insurance as a savings plan for the beneficiaries—money that will be given to them when you die.

On the other hand, let’s imagine that you have a mentally handicapped person you will support indefinitely, or a spouse that has never worked at all. These may be better candidates for Whole Life as the financial need they feel responsible for extends not only to some definite period in the future, but as long as the other person is alive. Under these circumstances, paying the premium for Whole Life might be worthwhile.
Wealthier people may also look at whole life insurance in a different manner as well. A whole life insurance policy can be used as part of their estate planning—a way to pay the estate taxes when they die from the proceeds of the policy. Also, older couples who are in their 40s and 50s who have a young family or are just starting a family also usually look at whole life insurance policies.