Eli5: whats the difference between term vs whole life insurance?
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Term – is good for X amount of years. Super Cheap and provides a large amount of coverge.
Whole – permanent insurance that you cannot outlive, very expensive and a significantly smaller coverage.
One is a scam and one isn’t. Whole life insurance basically never returns and you’re locked into a contract that you’ll be paying on your entire life. Term is much better and offers a safer option and the length of the coverage is shorter. 20 years is a common term length, for example.
Think of whole life insurance as an investment. Many allow you to borrow from it in emergencies after you have vested. I sold insurance in college for a little. Term insurance is a scam never do it. Whole life insurance also ends up being cheaper. Only catch is don’t miss a payment.
Term life insurance is very straightforward. You pay $X a month for Y years, and if you die during that time period you get $Z. It’s a commodity and you can shop purely on price at a site like term4sale.com. If you have other people in your life that you financially support with your employment who cannot support themselves if you die (eg children under 18), you should probably have term life.
Whole life mixes life insurance with investing. It’s always a bad idea and is designed to be sold not bought. It earns high commissions for the sales people. Buy term, which is cheaper, and invest the difference yourself.
Term – you pay a small amount every month so your beneficiary get the amount IF you die within the term
Whole life – you pay a set total amount over your life and your beneficiary is GUARANTEED the amount when you die.
No, you don’t pay for whole life until you die, the amount you pay is invested and after some years, the interest it generates pays the policy. Is it a scam? kind of. Will your beneficiary get millions of dollars TAX FREE, yes.
Term insurance expires at a certain time, eg. You get a 20 year term policy when your kid is born to protect until they reach adulthood. Policies are much more affordable because most people don’t die during the covered time frame.
Whole life eventually pays when you die so it’s much more costly due to certainty you will die.
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