Term Life Insurance vs. Whole Life Insurance
By: Elizabeth Silvestri, CFP^®
The Henssler Financial Group Position Paper

What is term life insurance?

Term life insurance provides life insurance coverage for a specified period of time, usually five, 10, 15 or 20 years. The beneficiary receives the death benefit if the insured dies while the policy is in force. No benefit is paid if the insured survives to the end of the term. Generally, premiums are level throughout the specified term.

Policies do not build up cash value. If the policy is surrendered, the policyholder does not receive any cash. When the term expires, the policyholder has various options depending on whether the policy is renewable, standard or convertible. With renewable term, the policyholder can renew coverage and take out another term policy without the formality of new applications or medical exams. With standard term, coverage ceases. The policyholder must apply again and take a medical exam if continued life insurance coverage is desired. With convertible term, the policyholder can convert the policy into another type of coverage such as Universal Life or Whole Life. In most cases, premiums will increase when renewing or converting policies.

What is whole life insurance?

Whole life insurance is a form of permanent life insurance that provides coverage for the life of the insured. Unlike term insurance, the policy will remain in force as long as the premium payments are made on time. Generally, premiums remain fixed regardless of a person's age or health.

Whole life insurance builds cash value, providing the insured with several options. The insured can usually borrow against the cash value of a policy. The insured can also choose to pay premiums from the cash value if the cash value grows to a sufficient level, instead of paying them out-of-pocket.

Several types of whole life insurance exist, including Universal Life, Variable Life, and Variable Universal Life policies. These types of whole life coverage offer the insured variability of death benefits, premium payments, investment choices or a combination of these factors.

What are the costs associated with these types of insurance?

Term life insurance premiums consist primarily of the pure cost of life insurance coverage, with no "automatic savings" feature. Whole life premiums include both the pure cost of current coverage, plus an additional amount that is added to cash value that provides the policyholder with either savings or a pool from which to pay future premiums. Premiums on whole life insurance are initially higher than term life insurance for an equal death benefit. If a policyholder wishes to maintain life insurance coverage until death, term insurance provides cheaper coverage in the early years, but will likely be considerably more expensive in later years, and may not be available.

What does The Henssler Financial Group suggest?

Life insurance should be purchased to cover costs, or to replace income, if the insured were to die prematurely. We generally do not believe in purchasing life insurance as an investment vehicle, as better non-insurance options are available. Our suggestion is to buy term life insurance rather than whole life insurance. As most people get older, their need for life insurance either decreases or is eliminated completely; therefore, a term life policy, which is less expensive than a whole life policy, provides life insurance coverage only for the period of time the coverage is needed. The money saved from lower premium payments can be invested, normally at a lower cost than what is incurred in an insurance product. Prices for the same coverage, and even the same type of policy, can vary significantly from company to company. It is important to shop around before deciding on a specific policy to purchase. For more information regarding this topic, please contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.