Term Life provides you protection for a defined period, during which premiums stay the same and pay the face amount of the policy in the event of a loss. With Whole Life, when you pay your premium, part of it goes into a cash reserve that you can typically access
This example is for illustrative purposes only.
The simple answer is that they are both types of life insurance, and life insurance can help take care of your family's finances in case you die. If you aren't around anymore, life insurance can help make sure there's some money available to do things like send your children to college and make your house payment.
Most of us avoid thinking about life insurance because we don't like to think about, well, our own deaths.
Then what's the difference between term life insurance and whole life insurance?
Whole life insurance stays with you, providing benefits to your loved ones at the time of your death, whenever that is.
Term life insurance, on the other hand, provides coverage and pays benefits to your survivors during specific shorter timeframes that you choose, like 10 years or 20 years.
It's sort of like buying versus renting.
With whole life, you are protecting your loved ones for your entire lifetime without risk that the price will go up.
Term life, on the other hand, is like renting because it gives you coverage during the specific number of years you need it the most.
But which type of life insurance is best for you, term life or whole life?
To help explain let's look at Ann and her husband Tim, who both have jobs that pay pretty well.
And they have two kids at home, Johnny and Vanessa.
If Ann or Tim dies unexpectedly, they know it would be tough to keep paying all the family bills, make the house payments AND send their kids to college.
So what kind of insurance do Ann and Tim need? To figure it out, they did the math. It will be 15 years before Johnny and Vanessa are both done with college, so Ann and Tim decided that if one of them dies, and if they want their family to be able to stay in their house and stay active in the same activities, they each need a 15-year term life insurance policy so that if one or both of them dies their family's finances will be a little easier.
But what happens after 15 years when their term policy expires? This is where whole life insurance can help. Whole life covers you during your whole lifetime: once you have it, it's there for you and doesn't have a time limit like term life does.
Because Ann and Tim still want some life insurance in their later years, each of them also bought a smaller whole life insurance policy to cover funeral costs and other personal or family expenses no matter when they die.
Ann and Tim feel a lot better knowing that their deaths won't be a financial burden to the family they leave behind.
I hope that helps. So, until next time, stay smart and stay healthy.