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Term Life vs. Whole Life Insurance: Differences and How To Choose
Term life insurance is cheaper than whole life insurance, but it covers you for only a set number of years.
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To better understand the difference between term life and whole life, here’s a quick rundown on how each type of coverage works.
Term life vs. whole life: Overview
The way term life insurance works is simple: It covers you for a fixed period of time, such as 10, 20 or 30 years, and pays out if you die during the term. If you outlive the term and your coverage ends, your beneficiaries don’t receive any money. Most policies are a type of level term life; the death benefit and insurance premiums are guaranteed to stay the same throughout the term. A decreasing term life policy is slightly different, and less common. The death benefit gets smaller over the length of the term while the premiums stay the same.
Term life insurance
Whole life insurance is the most common type of permanent life insurance and costs more than term life. This is because most policies offer coverage that matures late in life—at 90, 100 or 120 years old, in some cases. Whole life insurance also has a cash value component. A portion of your premium goes toward the cash value, which can grow over time. Once you’ve built up enough cash value, you can borrow against it or surrender the policy for cash.