All of the following are differences between permanent and term life insurance, except:

Read this informative article on the differences between whole, universal and term life insurance policies and how some life insurance options can earn cash value.

Life insurance policies have two main categories: term and permanent.

Term life insurance

You can think of term life insurance as temporary life insurance. When you buy a term policy, you pay a fixed amount for coverage with a set expiration date. For example, a 20-year term policy would remain in force for 20 years from the day the coverage started as long as premiums were maintained. If you died during this period, your designated beneficiaries would receive the policy death benefit. If you live past your policy's term period and you want to remain insured, you'd need to buy another life insurance policy, or pay a new premium amount that may be significantly higher than your previous payments.

Permanent life insurance

In contrast, permanent life insurance policies don't have a set expiration date. These policies are designed to last your entire life, provided you keep making your required premium payments on time. Permanent life insurance policies offer an additional feature known as “cash value.” This is money in your policy that you can withdraw or borrow against. It is important to note that loans against an insurance policy accrue interest and decrease the death benefit and cash value by the amount of the outstanding loan and interest. There are three common types of permanent insurance policies:

Whole life insurance

Whole life insurance policies have a fixed premium, meaning you need to pay the same amount each year. Whole life insurance also provides steady, fixed growth on your cash value.

Universal life insurance

Universal life insurance policies have flexible premiums. You can change how much you pay each year; though you need to pay a minimum amount or the policy will lapse. Your earnings in a universal life policy can vary based on the specifics of your policy and the interest rates that are credited. Some years, universal policies may earn more than whole life and others they may earn less.

Variable life insurance

Variable life insurance policies allow you to invest a portion of your premium into the insurer's separate account, providing access to professionally managed investment options. You can potentially earn higher cash value with these policies. However, if your chosen investment options under-perform (or if sufficient premiums are not paid), the policy may lapse or not accumulate sufficient value to maintain the policy.

WEB.1109.11.13

Choosing the right life insurance policy is important. Understanding the difference between term and whole life insurance is a valuable part of the decision. At Aflac, we offer a variety of life insurance plans to help meet your specific needs.

According to LIMRA, 52% of Americans reported owning some type of life insurance in January 2021. This included individual life insurance, employer-sponsored coverage, etc.1 Picking the right life insurance policy can greatly impact your retirement plan and your family’s financial security.

What is Term Life Insurance?

When deciding between term or whole life insurance, there are crucial differences to take note of. Like it sounds, term life insurance provides coverage for a set term or specific amount of time. They usually vary between 10 and 30 years long. If the policyholder passes away during that specified period, your beneficiary will receive the payout.

The cost of whole life insurance vs. term varies, but term life insurance is usually more affordable. It costs less because there is only a payout if the timing aligns. We hope that you outlive your term, but if not, the payout can help provide support for your loved ones.

You are also able to choose your term based on your unique situation, possibly reducing costs in the long run. This choice is popular for young families because of the lower premiums upfront. It can also be a good choice for seniors factoring in their long-term plans.

What is Whole Life Insurance?

When wondering, “should I buy term life insurance or whole life?” there are a few key takeaways. Whole life insurance provides coverage for your entire life cycle. Typically, whole life insurance costs more because it serves as an investment. This investment, otherwise known as the cash value, is able to grow throughout your lifetime tax-free.

When deciding between term or whole life insurance, you should note the following about whole life insurance. The premiums will not change throughout the course of your life and the death benefit is certain. You do not need to choose a term length. Lastly, the cash value will grow in a tax-deferred account at a secured rate. This is a popular choice for those looking to maximize their financial potential.

Term vs. Whole Life Insurance Pros and Cons

There are a few crucial differences in term and whole life insurance. We want to make it easy for you by breaking those differences down into pros and cons.

• Term Life Insurance Pros: It’s customizable, specific to your timeline, and usually costs less than whole life insurance.
• Term Life insurance Cons: If you outlive the term length, your coverage will end and you won’t receive any benefits. You will not be covered your entire lifetime and your policy will not accumulate cash value like an investment account does.
• Whole Life insurance Pros: The premiums will always be the same amount, the payout is guaranteed (subject to limitations and exclusions), and the value of your plan grows at a constant rate.
• Whole Life Insurance Cons: You cannot choose the length of the policy and it’s typically more expensive than term life insurance.

Cost of Whole Life Insurance vs. Term Life Insurance

Choosing between whole life and term life insurance depends on your financial goals. We encourage you to determine what kind of financial security you’d like in place throughout your lifetime. This will allow you to assess the costs and the long-term value of term and whole life insurance accurately.

One of the main differences between whole and term life insurance is the cost. The costs of either plan vary depending on age group, gender, and medical history. Even so, whole life insurance tends to have higher premiums than term life insurance. The premiums are higher because the payments are put into an account that accumulates over time. This can provide you more security when the time comes.

Term life insurance usually has lower premiums. If you choose a 30-year term at a lower rate and your timeline is correct, your family can still receive ample security and possibly avoid higher premiums.

What is the difference between permanent and term life insurance?

What are 3 the difference between whole life and term insurance?

What is the difference between term insurance and term life insurance?

What are 2 main differences between the types of life insurance policies?