Policy Types

Evaluating the Expenses of Whole Life Vs. Term Life

Whole life offers lifelong coverage whereas term offers limited time coverage. This longer coverage period plus added benefits makes Whole Life more expensive, but it still may be right for you.

Why Are Whole Life Insurance Rates More Expensive Than Term Life Insurance Rates?

If you’ve been shopping for life insurance, chances are you’re gathering quotes and comparing the rates from the many different types of life insurance policies. As a result, you’ve probably noticed that the rates of whole life are typically more expensive than term life insurance. But have you wondered why that is?

The most common answer is that a whole life policy combines life insurance protection with a cash value that accumulates. You can use the cash value by withdrawing or borrowing against it over your lifetime.

Life Insurance coverage that lasts a lifetime

Because whole life insurance is a permanent policy, it’s meant to last your entire lifetime. This means that as long as you continue to maintain your premium payments, you’ll have your whole life policy until you die. As a result of this lifelong coverage, higher premiums are reflective of the longer coverage period for a level premium, in contrast to a term policy where there is a limited time (term) in which the premiums are level.

Higher Life insurance policy fees

According to findings by the Consumer Federation of America as reported by Market Watch1, whole life policies often carry higher costs at policy issue and higher ongoing administrative costs than term insurance, therefore the insurance company needs to account for these additional costs. Ask your agent about the costs associated with a whole life policy before you buy, as well as a policy illustration that shows the projected, non-guaranteed and guaranteed cash value accumulation of a policy over time.

Finding an affordable life insurance policy

There are many factors that may contribute to the higher premiums of a whole life policy in contrast to those of a term life policy. And for some people, paying more for certain benefits are simply worth the extra costs. The key takeaway is to fully understand the type of policy you’re considering buying so that you make an informed decision based on your individual needs and budget.

1. “How to Buy a Life Insurance Policy,” Market Watch, May 2011

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

Neither Protective Life nor its representatives offer legal or tax advice. We encourage you to consult with your financial adviser and legal or tax adviser regarding your individual situations before making investment, social security, retirement planning, and tax‐related decisions. For information about Protective Life and its products and services, visit www.protective.com.

Whole Life Versus Term Life

Through this article, Protective Life explores the options of whole life versus term life insurance policies. Some use life insurance policies as a savings feature. In your research, you may have noticed that whole life insurance is more expensive than term life. Have you wondered why that is? Life insurance rates may vary due to different factors. Consider talking with your agent or financial adviser to decide which policy is best for you and your family. For more information, visit our learning center.