What’s the Difference Between Term and Whole Life Insurance?

It’s smart to purchase life insurance. It helps protect your loved ones’ future and can help you ensure that you leave a legacy of care behind. No matter what stage of life you’re in, it’s wise to carry a life insurance policy.

But there’s more than one type of life insurance, and no one solution is perfect for every situation. Term life insurance, whole life insurance and universal life insurance all provide protection, but they work differently. Understanding what sets them apart from one another can help you choose the right one for you.

Breaking Down the Differences

When you’re trying to understand different kinds of life insurance, you can be understandably confused. What are the differences between term and whole life insurance? What are the pros and cons of term and whole life insurance? Which is better, term or whole life insurance? And what about universal life insurance?

We’ll break down term life vs. whole life vs. universal life insurance and outline the pros and cons of each to help you determine what might best fit your family’s needs. Of course, your best resource is a seasoned advisor, who can help you sort out which option fits your family’s needs. But knowing the differences is a great place to start.

Before you begin, you can take a peek at our Life Insurance Calculator to get a picture of what you might need — and how much it could cost. 

Term Life Insurance: Set Duration & Lower Cost

Here’s a simple way to think about term life insurance: It is, in essence, temporary coverage. This policy type is designed to provide a guaranteed death benefit to your beneficiaries should you pass away during the term of your coverage. With this coverage type, your premiums remain fixed for the policy’s term — in other words, a set number of years. You can opt to continue coverage after the term runs out, but at that point the premiums may increase. 

Term policies are appealing because they generally have a low premium, creating an affordable way to get financial protection for your family’s future. Because of the lower cost, term life policies can also be an attractive option for younger people and families.

Whole Life Insurance: Lifetime Coverage and Cash Value

Whole life insurance is a type of permanent life insurance. Unlike term life insurance, which expires at the end of a set term, it offers protection for your entire lifetime, as long as the premiums payments are kept current. 

One major benefit of a whole life insurance policy is that you’ll have coverage for your entire life. You enter into a contract when you purchase the policy, so you won’t have to worry about the premiums increasing as you grow older. They stay steady as long as the policy holder is alive. 

With a whole life insurance policy, you also accumulate value as you pay your premiums. Later in life, after your cash value has accumulated, you have the option to borrow against your policy for estate planning or other financial needs.¹

Typically, the premiums payments on a whole life policy are higher than on a term policy. That means that this option may be more attractive to those who want to achieve multiple goals with one policy.

For example, if you may want to use the policy’s accumulated cash value to create a supplemental income for costs like final expenses, long-term care, retirement or keeping a business in the family, a whole life policy can be a great option. It can also serve as an inheritance vehicle for children or grandchildren.

That’s not to say that young or single people can’t benefit from whole life insurance. In fact, if you can afford it, it’s a great idea to purchase whole life insurance when you’re young, especially if you have children. Premiums are set when the policy is purchased, and because younger and healthier people pay less for life insurance, getting a whole life insurance policy when your younger will result in lower premiums for life, and will provide for your family in case something happens to you as well. 

Policyholders who already have term life insurance can convert their term life policy to a whole life policy to take advantage of the cash benefits, though their premiums will be affected. 

Universal Life Insurance: A Flexible Alternative

Another form of permanent life insurance is universal life (UL) insurance, which differs from whole life insurance by offering flexible protection and flexible payments. Universal life insurance is more customizable than whole life insurance. You can add a benefit that will pay for care if you need it, and you can choose to fund at a maximum limit to take full advantage of tax benefits. 

In a way that is similar to whole life policies, UL policies build an accumulated value based on your premium payments. While you are still living, you can borrow against the accumulated value for expenses like purchasing a home, starting a business or even creating supplemental income for your estate planning.

However, because your payments are flexible, universal life insurance policies aren’t as set-and-forget as whole life policies. It’s important to regularly review your account value to ensure that your premiums are able to maintain the coverage you want.

Find the Right Fit for You 

Your life insurance needs change over time. At Farm Bureau, we can help you choose the right type of life insurance that fits through all of life’s changes. Each option differs in price and coverage characteristics, but all serve as financial protection for those who matter most to you. No matter which type of coverage you choose, life insurance premiums are almost always lower when you’re younger and healthier, so don’t wait.

Contact Farm Bureau to discuss your specific life insurance needs.