How Are Term and Whole Life Coverage Different?
Term life policies and whole life policies differ in several significant ways.
First, whole life policies are designed to last longer than term policies. Term life policies are in effect for a set amount of time, which is agreed upon when the policy is purchased. Common time frames include 10, 20, and 30 years, although a policy could theoretically be written for any duration of time. Whole life policies, in contrast, are meant to last for a person’s entire life.
Second, whole life policies usually offer investment options along with death benefits. Term life policies generally only offer death benefits.
Finally, the premium structure for whole life and term life policies tends to be different. Term life policies frequently (although not always) have fixed premiums that don’t change. In comparison, whole life policies’ premiums tend to increase over time, often becoming much larger than term policies’ premiums.
The higher premiums of whole life policies, however, can be offset by the investment options they provide. Eventually, the earnings from a whole life policy’s investments may become greater than the premiums — at which point the premiums can essentially be paid using only the policy’s investment income.