How is term life insurance different from whole life insurance?
Definitions and Vocabulary
With the number of insurance products on the market it is understandable that there’s some confusion over the differences between term life insurance and whole life insurance. There are several important differences between these products, and hopefully this information will help you determine what kind of life insurance product is best for you, helping you understand term vs whole life insurance.
One of the first differences in term life insurance vs whole life insurance is that term life insurance only covers you for a set number of years, determined when you open your policy. This term can range anywhere from 5 to 30 years, as these products are designed to cover you during the years that you will be working and making an income, thus providing extra protection for your family. In contrast to this, whole life insurance covers you for your entire life, and does not expire as long as you uphold the conditions in the policy, like paying every month.
Another important distinction between term and whole life insurance is equity. With a whole life policy you can build equity from your payments, because the policy never expires. Once you have built equity you can use it to obtain financing, or trade it for cash value. Many have asked the question “Does term life insurance have a cash value?” and this is usually what they are talking about. In this sense, no, term life insurance does not offer a cash value that you can get absent a payout in the event of your death.
As you can see, there are some important differences between term and whole life insurance, term life insurance is usually used to provide extra protection during your working years, while whole life insurance is designed to last beyond those years into your retirement. Understanding your needs and goals will help you pick the best term life insurance for you!
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