Term Life Insurance:
- Coverage Period: Term life insurance provides coverage for a specific period, or "term," which can be chosen by the policyholder. Common terms include 10, 20, or 30 years.
- Lower Premium: Term life insurance generally has lower premiums compared to whole life insurance because it provides coverage for a limited duration.
- No Cash Value Accumulation: Term life insurance does not accumulate a cash value component. The policy expires at the end of the term, and the insured needs to renew or purchase a new policy if they want continued coverage.
- Temporary Protection: Term life insurance provides temporary protection for the specified period, primarily focusing on providing financial security in case of the insured's untimely death during the policy term.
Whole Life Insurance:
- Coverage Duration: Whole life insurance provides lifelong coverage as long as the policyholder continues to pay the premiums. It covers the policyholder until their death, regardless of when it occurs.
- Higher Premium: Whole life insurance premiums are generally higher than term life insurance premiums because the policy covers the entire lifetime and also includes a savings component.
- Cash Value Accumulation: Whole life insurance policies have a cash value component that accumulates over time. This cash value grows on a tax-deferred basis, and the policyholder can borrow against it or withdraw from it while they are alive.
- Permanent Protection and Estate Planning: Whole life insurance provides permanent coverage, making it a popular option for individuals looking for long-term protection and estate planning purposes. The accumulated cash value can be left as a death benefit for heirs or used for retirement planning or other financial needs.
In summary, term life insurance offers affordable temporary protection for a specified term, while whole life insurance provides lifelong coverage and includes a cash value component for savings and estate planning purposes, but comes with higher premiums. The choice between term and whole life insurance depends on individual needs, risk tolerance, and financial objectives.