Term Life Insurance vs. Whole Life Insurance

Term life insurance

Term life insurance is designed for people to buy higher death benefits with lower costs. Any premium that has been paid is forgone and no death benefit is paid if the insured survives the insurance term. Premiums are determined by many factors such as age, sex, term, type of job, and level of health of the proposed insured etc., and will be lower if you are younger and healthier. Term life insurance is highly recommended for young parents with limited cash flow, as well as others who want to protect their surviving families with considerably lower premiums, compared to whole life insurance.

Whole Life Insurance

Whole life insurance can be used for many purposes: to protect surviving families from financial loss caused by the insured's early death, to accumulate wealth with tax deferral benefits, to transfer wealth, or pay for estate taxes after death of a wealthy insured, etc. Regardless of purpose, premiums in individual life insurance are not tax deductible, and for the same amount of death benefits, a whole life insurance costs much more to buy than a term life insurance. Generally speaking, for people who need a life insurance but cash is limited, it may make more financial sense to get a term life insurance and save the rest that you would have paid for a whole life insurance premium in a tax deductible savings account such as an IRA or 401K. Sales people who sell a whole life insurance as opposed to a term life insurance tend to receive higher commissions. So, consult a financial advisor who does not have conflict of interest in this matter to find out which life insurance is better for you.

This contains opinion of Misook Yu and may have errors. Consult your financial advisor for more information.

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