If you are researching life insurance, one of the first things that you may notice is that there two major “types:" Term life insurance and whole life insurance.

Whether you’ve heard of either before or not, it can sometimes be a little bit confusing to get a good answer on what the specific differences are and which is right for you and your family.

The first thing to know is that both provide the basics of insurance coverage – a benefit amount of money paid to your loved ones if you pass away.

So what's the difference? The short answer:

Term life insurance provides temporary protection. Whole life insurance provides permanent protection.

Term Life Insurance

Because of its temporary nature, term life policies can provide a substantial amount of coverage for a much lower cost than whole life insurance, especially for younger people.

Term policies provide protection for fixed periods of time – for example, brightpeak offers 10, 20 and 30 year term policies – at guaranteed rates.

This is often the best choice for young families who need a lot of protection while their family is young and money is tight.

Another reason why term is popular among young families is because parents typically need more coverage while the kids are at home. Once the kids are grown and moved out the house, the amount of insurance needed is typically lower, since fewer people depend on your financial support.

Whole Life Insurance

Whole life policies are designed to cover you throughout your entire life.

Instead of terms (10, 20, 30 years - etc.), whole life coverage stays in force as long as you pay your premiums. The policy also includes a savings component.

Depending on the product, the savings component can be anything from an interest bearing account to securities. The savings component grows tax-deferred and it can be borrowed from the policy. 

Whole life is often more expensive, because you are essentially “overpaying” in the early years to fund your coverage in later years.  

This enables the insurance company to charge a level premium that doesn’t increase as you get older.

Which is right for me?

Your situation is unique. But there are some general rules of thumb to follow when deciding which route to follow:

• As mentioned above, if affordability is your biggest concern, term life insurance is probably the way to go.
• Term is often recommended for young families because it provides the most coverage during a period in your life where expenses are high and your children depend on you.
• Whole life could be more appropriate if you are interested in leveraging your policy as a place to build savings or plan your estate.

If you have more questions about the differences between term and whole life insurance, send us an email or call us toll-free at 855.348.3091.