With the advent of term life insurance, many people find themselves not even considering a whole life policy. Whole life policies are, above all else, expensive. They can cost significantly more than a term life insurance policy, and the death benefit is the same or less. All other things being equal, you can get a term life insurance policy with the same face value and death benefit as a whole life policy for a mere fraction of the cost.

Still, people buy whole life policies all the time. While the percentages of the market devoted to whole life policies has dropped over the years, there are still some situations in which buying whole life still makes sense.

Long-Range Goals

Term life insurance covers you for a specific term – usually not more than 30 years. Term life insurance protects your family in case something happens to you. As you get older, your family will usually become less dependent on you and more able to care for themselves. Your children will grow up, leave the house and get jobs of their own. If something happens to you after that point, they won’t be as severely impacted financially.

Term life insurance, then, provides you peace of mind for a time when you most need it. It covers you during the “middle” years of life. It doesn’t provide you with anything for your later years.

In contrast, whole life takes you through the entire life span. The premiums payments are level, so the younger you are when you purchase the policy, the less expensive premiums will be. Whole life insurance stays with you for as long as you live (and maintain the premium payments on the policy).

Real Cash Value

In addition, a whole life policy will actually build a cash value. It builds up something known as a “guaranteed cash value.” This cash value can be sent to you when you surrender a policy. More often, however, this cash value is used to back a possible loan against the policy. You can use that cash value for temporary needs or for an emergency.

The amount of your cash value will vary. It depends on a number of factors, including what kind of policy you have, how big the policy is, and how long you’ve had it. The growth of cash value is deferred for income tax purposes.

Dividends

In addition to building up a cash value, whole life insurance policies will earn dividends. These dividends occur when the actual costs of the life insurance company wind up being lower than they assumed they would be when they set the premiums. At that point, the insurance company may return a part of your premium to you in the form of a dividend.

Dividends, of course, aren’t guaranteed. There’s no way for your insurance company to predict in advance that there will be dividends.

Overall, whether you choose term life insurance or whole life really is a personal decision, and one based on your individual circumstances.