Whereas term life insurance runs only for a set period of time -- the "term" -- whole life insurance coverage continues until you die. Whole life policies have many advantages that term life cannot offer and some disadvantages that term life policies help you to avoid. Knowing the advantages and disadvantages of whole life insurance policies can help you decide if this is the right type of life insurance policy for your needs.
The permanence of a whole life policy can be both an advantage and a disadvantage depending on your situation. Some people like the fact that they will enjoy the same amount of coverage no matter their age or health and that this coverage cannot be taken away as long as the payments are made. On the other hand, others may eventually find the premiums difficult to keep up with, especially in the later years when kids are grown and the high level of financial support that was once necessary is no longer a concern.
The cost of a whole life policy is its main disadvantage. Since term life policies only cover you for a limited time and do not feature any investment benefits, the premiums are cheaper in comparison. Whole life policy premiums can be as much as 10 times higher than term life premiums for the same amount of coverage. In addition to the cost of the premiums, whole life policies tend to have fees and commissions attached by the underwriter, thanks to their high value and open-ended term.
A whole life insurance policy is an investment. Your insurance premiums are placed into stocks or bonds and earn interest over the life of the policy. The balance of your whole life insurance account can be borrowed against and counts as an asset in your overall financial profile. The real value of your policy investment may take time to build depending on the investment vehicle chosen and the amount of fees and commission you must pay off at the start of the policy. In some ways, a whole life or cash-value policy is similar to a mortgage, with the initial years of payments going toward the interest. As a rule, the longer you have your policy, the more it will be worth although there is always the possibility that investments will not grow at all.
Whole life policies come with a monthly premium amount that is locked in for the life of the policy without the possibility of change. Term insurance policies require renewal from time to time based on the length of the term selected. At each renewal the monthly premium is subject to adjustment and is typically raised, because the older you get, the more likely it is that you will die during the term.
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