Whole Life and Term Life insurance policies offer the same protection in that both pay the face value of the policy to your beneficiaries upon your death. This is probably the only area in which they can be compared.
Whole Life, also called Permanent insurance, is in force for the rest of your life and has an investment feature called “cash value”. The premium is constant unless you purchase a Modified policy which will start with a lower premium and then after 3 to 5 years will level out for the duration of the policy. Approximately 70% of all life insurance policies sold are Whole Life; it has been the most predominant type of life insurance over the last 100 years or so. Let’s not forget that your insurance agent makes a higher commission on this type of policy.
Term Life, as its name implies, is for a term and expires afterwards. It offers a death benefit only if you die during the term of the policy, usually 10 to 20 years. Many will argue this to be a temporary insurance because it has an expiration date and unless it is a level term, the premiums will increase several times over the years. It has no cash value, however it is close to 90% less than the cost of a Whole Life policy.
Over the last 50 years, people have become much more savvy about their finances and life insurance. There is an ongoing debate over which is best, Whole Life which is more expensive and includes a saving account called “cash value”, or Term Life which is approximately a 10th of the cost and allows you to make your own investments.
This is a question only you can answer by deciding whether you are disciplined and can stick to an investment plan. With one of the Whole Life policies, and there are many, all you have to do is set up an automatic payment with your bank and go about your business. After a number of years the cash value will increase to the point that you will have a nice stash of cash to tap into in case of an emergency; not bad!
If you have more of an aggressive financial spirit, you might want to consider another option. If you are a 40 year old man, you can buy a $500,000.00 Whole Life policy for about $3,000.00 per year; and it will include an accumulated cash value feature. Or you could buy a $500,000.00 twenty year Term Renewable Life policy for about $350.00 per year, however it will have no accumulated cash value. With the term policy, you will have a huge $2,650.00 a year savings for the same $500,000.00 worth of life insurance protection. If you are a prudent investor, you could end up with huge earnings, a lot more than what the cash value of a Whole Life policy will pay. You can easily see why Term Life is becoming more popular now that people are learning how to put the pencil to their investments.
With an ordinary Whole Life policy as in Term Life, all that your heirs will receive upon your death is the face value of the policy and none of the cash value. With Whole Life it is in force until you die, as are the premiums normally. With the same $3,000.00 a year, if you invest wisely, you probably will not need any type of insurance after 20 or so years.