When to Consider Both Whole and Term Life Insurance

Insurance, Life Insurance
When to Consider Both Whole and Term Life Insurance

Life insurance policies are a serious commitment, but that doesn’t mean a single policy will meet your needs for the rest of your life. You may buy term coverage and eventually decide that whole life is a  better fit. Or in some cases you might decide to buy a new policy type on top of the one you already have.

It’s important to know the difference between term and whole life insurance so that you can decide if you want to double up.

» MORE: Life insurance definition

Combined permanent and term policies meet many different needs

Term and whole life insurance policies work very differently. Whole life policies are a type of permanent life insurance, meaning they pay a guaranteed death benefit no matter when you die as long as the policy is paid up. They are good for covering permanent financial obligations such as caring for a disabled child or helping your heirs pay estate taxes.

Term life policies, on the other hand, only pay a death benefit if you die during the policy term — usually 30 years or less. They’re good for helping your surviving spouse or children if you’re no longer around to provide an income. Because most people are expected to live longer than the term of the policy, they also cost much less. For some customers, whole life can cost 10 times as much as term for the same coverage level, according to insurance agent group Trusted Choice.

» COMPARE: NerdWallet’s life insurance comparison tool

The differences between whole and term life make them a good fit for different clients, or sometimes, for the different needs of a single client. You might want to buy both whole and term life insurance if:

  • You can’t afford as much coverage as you want. Many people combine permanent and term policies to save money without sacrificing coverage. Say you want $500,000 worth of coverage, but can only afford a $250,000 whole life policy. You might add $250,000 worth of term life to maintain the benefit level for a lower premium.
  • You need more coverage over time. If you upgrade to a larger house or have another child, you should consider adding more life insurance. But these financial obligations are temporary — eventually, you’ll pay off the house, and your kid will become self-supporting. If you already have a whole life policy, adding a term policy on top of it might be better — and less expensive — than adding more permanent coverage.
  • You can afford more coverage. Many families start with term life insurance quotes because they’re less expensive, but prefer permanent protection. If you would have liked a permanent policy from the get-go, you can always buy one later, in addition to the term policy you have.

Buying two policies is usually easy, but there can be roadblocks

It’s completely legal to buy both permanent and term life. In fact, there’s no strict limit on the number of policies you can have. If you want three term policies and two whole life insurance policies, you can apply for them. Simply contact your agent, comparison shop and send in your application as you normally would.

Keep in mind, though, that insurers will ask about other coverage during the application process. They may choose not to issue you a policy if they don’t think you can pay for it, or that you have enough assets to justify it. Be prepared to explain why you want more.

Alice Holbrook is a staff writer at NerdWallet, a personal finance website. Email: alice.holbrook@nerdwallet.com. Twitter: @alicenerdwallet.


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