Whole of Life vs. Term Life Insurance – What’s the Difference?

Have you been considering buying life insurance but are torn between Whole of Life and Term Life insurance? Don’t worry; you’re not alone. As wide apart as these popular policies are, not many people can tell the difference between them.

Here, we’ll discuss what Term Life and Whole of Life policies are, their respective advantages and drawbacks, and what to consider before buying.

Let’s jump right in!

Whole of Life vs. Term Life Insurance – What’s the Difference?

What Is Whole of Life insurance?

In a word, Whole of Life is a policy that provides lifetime coverage and has a guaranteed payout, regardless of when you pass. As long as you keep up with the payments during your lifetime, the policy will pay a lump sum to your beneficiaries when you pass away.

If you’ve always dreamt of leaving your family financially protected, this is right the policy for you. Be it everyday expenses, debt repayment, or funeral costs, the policy’s payout will come in handy to finance the bills. You can compare whole of life insurance quotes for free at Reassured; an award-winning UK broker.

What Is Term Life insurance?

Term life insurance is a simple policy that covers you for a fixed period. For most providers, this period may range from 10 to 40 years. The policy can offer your family financial protection if you pass away during the contract period.

Consequently, that means that if you leave after the contract term surpasses, your family won’t receive any payout. Moreover, if you stop paying premiums, the risk cover ends, and the policy ceases to exist.

Term vs. Whole of Life insurance

Advantages of Term Life insurance

Cheaper than Whole of Life

Term life has a low premium outlay compared to the money it pays out when a risk occurs.

Perfect for temporary needs

If you only need protection for 10-40 years, term life policy covers expenses such as education and mortgage.

The younger you are, the lower the cost

Conscious of the fact that younger people are likely to be considered to be less of a risk, insurance providers charge lower costs.

Tax-free proceeds

The payouts are neither subject to any income tax nor counted as taxable income.

Advantages of Whole of Life Insurance

Lifetime coverage

As long as you keep paying the premiums, you’ll remain covered for the rest of your life.

Guaranteed payout

Unlike term life insurance, where you can outlive the contract, this policy guarantees that your beneficiaries will receive a payout regardless of when you pass on.

Level premiums

With the Whole of Life policy, you can do your calculations to establish exactly what your annual payments will be because the premiums don’t change. But as for the total premiums payable, that’ll depend on when you’ll pass away.

Limitations of Term and Whole of Life insurance covers

Term Life Insurance

  • After a specified period, the policy expires, so it’s upon you to get a new policy to keep your family protected further if you outlive the contract period.
  • The older you are when taking out a policy is likely to mean your premium will be higher.

Whole of Life Policy

  • The policy is comparatively more expensive as it offers lifelong coverage.
  • The option to lower or raise the cover amount is dependent on the occurrence of certain life events. For instance, you can only increase coverage if you marry or enter into a civil partnership, get a child or adopt one legally, increase the amount of mortgage, or get a promotion at your current job or get a salary raise at a new job

Factors to consider before buying life insurance

To help you make a more informed purchase decision when choosing between these two policies, we recommend you ask the following questions:

  • Do you have any existing health concerns?
  • What’s your age?
  • How much financial support does your family need?
  • What are your retirement plans?
  • To whom do you intend to leave (part of) your estate? Charity or family?
  • What higher education plans do you have for your children?
  • How much mortgage and other debts do you owe?
  • What are your funeral expenses plans?

Whole of Life or Term Life insurance – which one is for you?

Don’t let the cost of a Whole of Life policy or the coverage period of term life insurance overshadow your judgment. Instead, base your decision on the benefits that you’ll potentially receive from either of the policies. Also, consider factors such as your age, health status, retirement plans, and outstanding debts when making your decision.

Based on this information, would you go for the Whole of Life or term life policy? We’d like to hear your feedback in the comments below.

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About Dequiana Jackson

Dequiana Jackson, Founder of Inspired Marketing, Inc., helps overachieving women entrepreneurs conquer limiting beliefs and create marketing plans that win. This includes one-on-one marketing plan development, digital product creation, web design and content marketing. Dequiana is the author of Know Your Business: How to Attract Ideal Clients & Sell More and runs the award-winning blog, Entrepreneur-Resources.net.

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