Term life is “pure” insurance, whereas whole life adds a cash value component that you can tap during your lifetime. Term coverage only protects you for a limited number of years, while whole life provides lifelong protection—if you can keep up with the premium payments.
Policygenius reports that whole life insurance can cost six to 10 times more than a comparable term policy. That greatly increases the odds that you won't be able to afford your premiums at some point down the line. If that happens, you may have no choice but to drop your coverage, leaving your loved ones vulnerable.
When you outlive your term policy, you will no longer have life insurance coverage—but you can convert to a permanent policy or buy new term insurance.
Term Life Pros & Cons
| Pros | Cons |
|---|---|
| Lower premiums when you're younger | It's temporary coverage |
| Beneficiaries will receive larger death payouts | Must re-qualify at the end of the term |
| Can be converted to whole life insurance | Difficult to qualify if there is a significant health issue |
Disadvantages of Term Life Insurance
Premium payments for term life insurance increase after the initial guarantee period. For example, if you own a 10-year level term policy, you can expect a significant increase in your premium after the 10th policy anniversary. Cost Prohibitive Over Time.
Whole life insurance policies are the best option for some people, especially those who will always have dependents due to disabilities and the like. But if you're paying for an expensive policy you don't really need, cashing out may be the best option, even if you have to pay fees and taxes.
If you outlive your term life policy, you usually don't get any money. ... Return of premium (ROP) term life gives you back the premiums. The downside is you'll pay more than a regular term life policy. If ROP interests you, compare policies with and without that rider to see whether the extra cost is worth it.
Ultimately, you should keep your term life insurance for as long as you have a need for the insurance–children at home, a non-working spouse to provide for if you die, or to pay off a mortgage.
What happens to my premiums when the policy expires? At the end of your term, coverage will end and your payments to the insurance company will be complete. If you outlive your term life insurance policy, the money you have put in, will stay with the insurance company.
The cash value of a life insurance policy works like an investment or savings account and grows tax-deferred over the life of the policy. You can take out a loan against the cash value, surrender your policy for the cash, or use it to pay your premiums once it reaches a certain amount.
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