Term Life vs. Whole Life Insurance? | Pacific Wealth Solutions

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Term Life vs. Whole Life Insurance: What Exactly Is The Difference?

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The difference between term insurance and whole life insurance is that:

  • Term insurance provides coverage for a specific amount of time (usually 20 or 30 years) during which your beneficiaries will receive a payout should you or your spouse pass away. This option generally costs significantly less than whole life insurance.
  • Whole life insurance provides coverage throughout your lifetime during which, should you or your spouse pass away, a payout will go to your beneficiaries. This option generally costs significantly more than term insurance.

Knowing the difference between term insurance and whole life can make all the difference in making the right choice for your personal situation. While you may think the time you need to make the decision is far off, it’s not. The time to commit is now if you want the payoff in the future.

To help you make your decision, we here at Pacific Wealth Solutions will help you learn the pros and cons of term insurance and whole life insurance so you can make a better-informed decision. 

When to Choose Term Insurance

Choose term insurance if you want affordable coverage that will replace your income should you or your spouse pass away during the child-raising, mortgage-paying years. 

The pros of term insurance are:

  • You get to choose the length of policy.
  • Premiums are low, allowing you to allocate more money to paying off debt, building your savings, and making other investments.
  • The premium generally remains the same throughout the coverage period.
  • The amount of insurance payout is guaranteed.

The cons of term insurance are: 

  • It doesn’t provide lifelong coverage.
  • It doesn’t accumulate cash value.
  • You aren’t eligible for annual dividends.

The cost of term insurance varies depending on your age and sex, whether you choose 20-year or 30-year coverage, and the policy amount. However, it can cost as low as $133 per year for a $250,000 policy. 

When to Choose Whole Life Insurance

Choose whole life insurance if you want straightforward, permanent coverage that lasts your entire life. 

The pros of whole life insurance are:

  • The cost of the premium remains constant.
  • Payout is guaranteed.
  • It accumulates cash value that grows at a guaranteed rate. 
  • The accumulated cash value is tax free.
  • You might be eligible to earn cash annual dividends. This can be used to decrease your payments, repay loans, earn interest, or buy additional coverage.

The cons of whole life insurance are:

  • The premiums are much higher than term life premiums, meaning you can’t allocate as much money to pay off debts, add to your savings, or invest in other options.
  • You pay annually for the rest of your life.

The cost of whole life insurance, again, varies by age and policy amount. For a 30-year-old female wanting a $250,000 policy, she can expect to pay around $1,904 annually. The costs go up from there. 

What Is Better, Term Life or Whole Life Insurance?

As you can see, there is no one-size-fits-all answer to the question, “What is better, term life or whole life insurance?” Think of term life and whole life as being for different income groups and saving/investment purposes:

  • If you have a low budget, term life is great, and you can invest the rest of the cash in other things, such as stocks and bonds and mutual funds. 
  • However, the gains on those investments would be taxed. If you can afford more premiums, choosing whole life allows you to accumulate cash value tax free.

What Should You Do Now?

Since anything can happen and no one can predict the future, the ideal time to buy life insurance is ASAP. When you’re young and relatively healthy, the cost of premiums and the hassle of obtaining insurance are much lower than if you wait until you think you need it and can afford it.

Step 1: Apply Now

Step 2: Create an account.

  • Manage your policies and investment accounts.
  • Get help from MassMutual directly, or you can always contact PWS via live chat or email on our website.
  • Set preferences and notifications. Get helpful financial resources.

Step 3: Submit the application.

  • Sign in to your account and finish your application. 
  • Submit the application and wait for the approval.