The Key Differences between Term and Whole Life Insurance

An experienced finance professional, Jerry Guttman serves as a financial advisor with Total Living Plan in Phoenix, Arizona. Through this firm, Jerry Guttman helps clients develop strategies to build and maintain wealth, including risk management. Part of risk management is securing proper insurance products. One important product to consider is life insurance.

Life insurance comes in two basic forms: term and whole. Term life insurance is rather straightforward. You purchase a plan for a set period of time and, should you die while it is active, your named beneficiaries get money according to the terms of the policy. Once the policy expires, you will need to purchase another one. Term life insurance is significantly cheaper than whole life insurance.

Whole life insurance never expires, provided that you continue to make payments. Also, these policies have a cash value in addition to the death benefit. The cash value grows over time and generally has a guaranteed interest rate between 1 and 2 percent annually. You can also borrow against a whole life insurance policy, and these loans are typically free from taxes. However, these policies cost much more than term life insurance.