MR
  • Insurance
  • Mortgages
  • Debt Management
  • Personal Finance
  • Credit Cards
  • Retirement Planning
  • News
No Result
View All Result
Contact Us
MR
  • Insurance
  • Mortgages
  • Debt Management
  • Personal Finance
  • Credit Cards
  • Retirement Planning
  • News
No Result
View All Result
MR
No Result
View All Result
Home Insurance

Term Vs Whole Life Insurance: Which Coverage Is Best?

Adeola Adegoke by Adeola Adegoke
November 26, 2022
A A
term vs whole life insurance
586
SHARES
3.3k
VIEWS
Share on FacebookShare on Twitter

Life insurance is one of the most important types of insurance you can buy. It provides peace of mind in knowing that your loved ones will be taken care of financially if something happens to you.

When considering life insurance, there are two main types to choose from: term vs whole life insurance. Both have pros and cons, so deciding which option is best can be challenging. All the best insurance companies in Canada offer term and whole life insurance, so you can easily find and compare quotes online.

In this blog post, we’ll break down the differences between term and whole life insurance, and discuss term vs whole life insurance pros and cons, so you can make an informed decision about what’s best for you and your family.

What Is Term Life Insurance?

Term life insurance is a simple and affordable life insurance policy. It usually lasts for a specified period, maybe 10, 20, or 30 years, or till you reach a certain age. The policy pays out a death benefit to your beneficiary when you die. Your beneficiary can use the payout for everyday living expenses, college tuition fees, mortgage, or other debts.

Your designated beneficiaries only receive a payout from your policy if you die during the policy term. If you outlive your policy and it ends, your beneficiary will receive nothing. When your policy expires or is approaching the term’s end, you can renew the policy without another medical examination. However, this will incur higher premiums.

Some term life insurance policies have a feature that allows a conversion rider. This means you can convert your term life insurance into whole life insurance. But if you stop paying premiums or let your policy expire, your coverage will end automatically.

Simply put, term life insurance is straightforward and has lower prices. Ideally, the policy term should match your financial goal. So, if you are a new parent, you might consider buying a 20-year coverage to cover you until your child no longer depends on you financially.

Benefits of Term Life Insurance

  • It has a guaranteed death benefit amount.
  • The premiums are more affordable than whole life insurance.
  • Your insurance premiums stay the same during the level term period.
  • You can convert term life to a permanent policy.
  • If you want a policy specifically to cover your income-earning years, term life insurance is a good fit.
  • If you want coverage for specific financial concerns with a timeline, such as a mortgage, you should consider term life insurance.

Drawbacks Of Term Life Insurance

  • Coverage is temporary and has an expiry date
  • No cash value that you can tap into while you’re alive.
  • Premiums increase upon renewal
  • If you still need life insurance after the term, renewal rates might be unaffordable.

What Is Whole Life Insurance?

Whole life insurance, mostly called permanent life insurance, is a complex policy with many benefits. It offers coverage for your entire lifetime. Your policy doesn’t expire as long as you pay your premiums. Your beneficiary will receive the policy’s death benefit, regardless of when you die.

In addition to your guaranteed death benefit, whole life insurance offers an investment account called a cash value. A portion of your premium goes into the policy’s cash value. The insurance company invests it in a savings account, which grows tax-deferred.

You can borrow against or withdraw from the policy’s cash value while alive. If the cash value is large enough, you can surrender the policy and take out the cash value.

Also, whole life insurance has guaranteed premiums and death benefits. This means your premiums and death benefit remains the same throughout your policy’s lifetime. However, whole life insurance has higher premiums than term life insurance.

Benefits of Whole Life Insurance

  • It offers fixed premiums, so there are no surprise costs down the road.
  • It offers lifelong protection
  • Guaranteed death benefit.
  • Some of the policies allow you to earn annual dividends
  • It builds cash value at a regular rate.
  • The policy offer life insurance riders, including living benefits
  • It also offers extra coverage and features, such as accidental death and dismemberment coverage.

Drawbacks of Whole Life Insurance

  • More expensive than term life insurance.
  • More complex to understand the term life insurance
  • It gives you little control over how your cash value grows
  • Investment returns may be modest compared to other opportunities
  • The death benefit will be reduced if you withdraw from the cash value or don’t repay loans you take on the cash value.

Term Vs Whole Life Insurance: Which Coverage Is Best?

Term life insurance is typically much cheaper than whole life insurance, making it a good option for people on a budget. It can also be a good choice for people who only need coverage for a specific time, such as when they are raising young children or paying off a mortgage.

However, because it is only temporary, term life insurance does not build up cash value like whole life insurance. If you cancel your policy before the end of the term, you will not get any money back.

In contrast, whole life insurance costs more than term life insurance but also provides lifelong coverage and builds up cash value over time. This makes it a good option for people who want peace of mind knowing that their loved ones will be taken care of financially if they die.

Whole life insurance can also be used as an investment tool, allowing you to grow your money while still being insured. However, because whole life policies are more complex than term life policies, they can be more expensive to maintain.

Ultimately, the type of life insurance you choose should depend on your needs and financial goals. If you want the cheapest option with the most coverage, term life insurance may be your best choice. However, if you want lifelong coverage and the ability to grow your money tax-deferred, whole life insurance may be the better option.

Below, I have outlined the more minor differences between term vs whole life insurance.

TERM LIFE INSURANCE

WHOLE LIFE INSURANCE

Temporary coverage for a fixed time

Guaranteed lifelong coverage

Premiums are guaranteed only for the initial term

Level premiums are guaranteed for life

Best for temporary needs such as mortgage, children’s education, lifestyle protection

Best for permanent needs such as estate planning, retirement income, final expenses

Affordable cost of insurance, for the initial term

Premiums are higher due to lifetime coverage and savings component

You cannot take loans/withdrawals against term life policies

You can take policy loans and dividends may be withdrawn

The policy offers death benefit but no cash value

The policy offers death benefit and a growing cash value

Your policy payout is fixed when policy is purchased and doesn’t change

Your policy’s payout may increase with dividends for some policies

Your policy’s benefits can only be accessed at your death

Your policy’s benefits may be accessed during your lifetime either through dividends or loans

Can be converted into permanent policies

It does not require conversion

Term Vs. Whole Life Insurance: Cost Comparison

Regarding how much life insurance would cost, term life insurance is often more affordable. It offers temporary coverage and has no cash value.

Whole life insurance premiums are typically higher. The coverage lasts your entire lifetime and grows cash value.

Below is the cost comparison from Manulife between term vs whole life insurance for $250,000 for 40-year-old smoking and non-smoking male and females for a 20-year term length.

WHOLE LIFE INSURANCE

TERM LIFE INSURANCE

Smoking Male

$330/month

$75/month

Non-Smoking Male

$220/month

$28/month

Smoking Female

$264/month

$52/month

Non-Smoking Female

$183/month

$20/month

Final Thoughts on Term Vs Whole Life Insurance

Term life insurance is the most affordable option, and it’s a smart choice for people who want to ensure their loved ones are taken care of financially if they die. It’s a good choice for young families who want to ensure their loved ones are taken care of financially if something happens to them.

However, if you’re older or have an enormous estate, whole life insurance may be a better option. It offers lifelong coverage at level premiums and a cash value component that can be useful for your retirement.

It would be best to consult an insurance expert to determine which type of policy is best for your needs. Contact me if you have any questions.

Author Profile
Adeola Adegoke
Co-founder/CEO at The SEO Hive Digital Solutions | Website

Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.

Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.

The primary purpose of Money Reverie is to help everyday Canadians make better financial decisions by providing up-to-date financial news and information, reports, product reviews, and government programs.

Related Posts
  • Adeola Adegoke
    https://www.moneyreverie.com/author/adeola-adegoke/
    How To Register and Open A CRA My Account in 2023
  • Adeola Adegoke
    https://www.moneyreverie.com/author/adeola-adegoke/
    Property Taxes in Canada: Everything You Need To Know (2023)
  • Adeola Adegoke
    https://www.moneyreverie.com/author/adeola-adegoke/
    A Simple Guide To Sales Tax Canada 2023
  • Adeola Adegoke
    https://www.moneyreverie.com/author/adeola-adegoke/
    FHSA Canada: An Overview of Tax-Free First Home Savings Account 2023
Previous Post

Types Of Life Insurance In Canada (A Simple Explanation)

Next Post

A Detailed Guide On How To Buy Life Insurance (2022)

Related Stories

credit card insurance
Insurance

Credit Card Insurance: How Does Balance Protection Work?

by Adeola Adegoke
November 25, 2022
0

There is a form of insurance for everything. Just as you can buy insurance on your life, mortgage, belongings, and car, you can also purchase insurance for your credit cards....

Read more

What Is Auto Insurance Canada and How Does It Work? (2022)

What Is Rental Insurance? Why Should You Get It in 2022?

Whole Life Insurance in Canada: Get The Best Rates & Quotes

Understanding Group Life Insurance: Benefit & Downsides 2022

Next Post
how to buy life insurance

A Detailed Guide On How To Buy Life Insurance (2022)

how does life insurance work

How Does Life Insurance Work In Canada?: A Simple 2022 Guide

what does life insurance cover

What Does Life Insurance Cover And Does Not Cover? (2022)

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

I agree to the Terms & Conditions and Privacy Policy.

Recommended

minimum wage in Canada

2022 Minimum Wage in Canada By Province

June 28, 2022
bounc3 review

Bounc3 Review: Get Free and Instant Insurance Quotes

November 25, 2022
BMO InvestorLine Review

Best BMO InvestorLine Review – Easy Self-Directed Online Trading Platform: Pros, Cons & Trading Fees

December 15, 2022
Coinsmart review

A Detailed Coinsmart Review in 2022: Fees, Pros and Downside

November 25, 2022

Popular Story

  • Websites Where Men Give You Money

    12 Legit Websites Where Men Give You Money in 2022

    9735 shares
    Share 3894 Tweet 2434
  • 20 Best Performing Mutual Funds in Canada for 2022 [Updated]

    5528 shares
    Share 2211 Tweet 1382
  • 12 Top Safe Investments With High Returns in Canada for 2022

    4259 shares
    Share 1704 Tweet 1065
  • Best RESP Canada: 10 High-Performing RESP Providers of 2022

    3440 shares
    Share 1376 Tweet 860
  • What Is Canada PRO Deposit and How Do You Apply in 2023?

    2808 shares
    Share 1123 Tweet 702
  • Is World Financial Group (WFG) a Scam? An Unbiased Review 2022

    2572 shares
    Share 1029 Tweet 643
  • E-Transfer Payday Loans Canada 24/7

    2303 shares
    Share 921 Tweet 576
  • GST Payment Dates for 2023: Eligibility & How to Apply

    2249 shares
    Share 900 Tweet 562
  • 10 Best Investment in Canada for 2022: ETF’s, Stocks, Real Estate & More

    2100 shares
    Share 840 Tweet 525
  • How Much Does it Cost to Have a Baby & Raise a Child in Canada?

    2080 shares
    Share 832 Tweet 520
Facebook Twitter Instagram

Money Reverie

Adeola Adegoke

Owner/Founder

Money Reverie is a top personal finance and finance blog in Canada. We share finance tips & self-help to live a rewarding life.

Categories

  • Benefits
  • Business
  • Credit Cards
  • Cryptocurrency
  • Debt Management
  • Insurance
  • Investing
  • Mortgages
  • News
  • Personal Finance
  • Product Reviews
  • Retirement & Estate Planning
  • Reviews
  • Tax
  • Uncategorized

© 2021 Money Reverie

No Result
View All Result
  • Contacts
  • Contributors
  • Disclaimer
  • Newsletter
  • Personal Finance & Debt Management Blog in Canada – Money Reverie
  • Privacy Policy
  • Super Visa Insurance Quote
  • Terms and Conditions

© 2021 Money Reverie

Need Help With Anything Finance?

Enter your email address to get valuable personal finance & small business tips from top experts delivered to your inbox weekly.

This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.