Do I need both term and whole life policies?

Life insurance is life insurance, right? Well, not exactly. There are two main types of life insurance that you need to be aware of: whole life and term. Whole life policies contain a couple key characteristics that are unique, such as building up a cash value that you can receive in exchange for surrendering the policy and the length of the contract. Whole life policies last indefinitely, as long as you stay current with your premium payments. Additionally, once these policies have built up enough of a cash value, you may be able to stop paying for the policy and use the built up cash value to pay for premiums for the remainder of your life.

This sounds great, so why is there a need to have term life insurance also? Term life policies have no cash value, and they do not last indefinitely as whole life does. However, term policies fulfill a specific set of functions that whole life policies cannot easily accomplish. For one, term policies generally have much higher benefit payouts. This allows individuals to use term life insurance as a way to cover their debts in case the worst happens. It also will cover an individual’s earning potential in the event that they have families that depend on them. Rather than leaving your family without money after you die, you have the opportunity to leave them an amount that will get them through the potentially difficult times that they would otherwise face.

If you were to attempt to fulfill this function with a whole life policy you would be spending a much greater amount of money. Term life insurance, because it has no cash value, is much cheaper than whole life. Basically, you can get a lot more coverage with a term policy, for a much cheaper premium.

Although whole life has an important function, it is not sufficient in most cases to solely own a whole life policy. Term life will fill in the gaps left by a whole life policy. And what’s more important, your family will have that extra layer of protection.

Matthew G Young – TermLifeInsurance.org Expert is a New York State licensed Life, Accident, and Health Insurance agent. He is also the author of The Complete Guide to Investing in Annuities: How to Earn High Rates of Return—Safely. Matthew currently resides in Western New York with his wife and family.