Term vs. Whole Life Insurance: Begin With the Coverage Need

Name the financial gap the policy would address

Ask who would need financial support if the insured person died, which expenses would continue, and for how long. The calculation can include unpaid caregiving work as well as lost earnings. Avoid counting the same obligation twice.

For an initial illustration, $2,000 of monthly household support over ten years is $240,000. Add $50,000 of separate debt and $10,000 of final expenses to reach $300,000. If $60,000 of assets is specifically available for those needs, the remaining gap is $240,000.

Sources: NAIC: Life insurance buyer’s guide

Compare duration and premium commitments

Term coverage ends at the stated time unless a renewal or conversion provision applies. Renewal can cost more, and conversion has its own conditions. A level-term policy can keep the premium and death benefit level for its specified period.

Whole life generally costs more than term coverage for the same initial death benefit and is intended for a longer commitment. Review the premium schedule and what happens if you stop paying. Different forms of permanent insurance have different rules; “permanent” is not one identical contract.

Sources: NAIC: Life insurance types

Read cash value separately from the death benefit

Cash value is not automatically an extra amount added to the stated death benefit. Ask how the particular policy pays beneficiaries and how loans, withdrawals, or surrender would affect coverage and available value.

Illustrated dividends or other nonguaranteed figures can differ from what actually occurs. Compare the guaranteed columns with the illustrated columns, and ask about surrender charges, loan interest, and potential tax consequences before treating cash value as freely available savings.

Sources: NAIC: Life insurance buyer’s guide · NAIC: Comparing types of life insurance

Compare contracts you could keep in force

Use the same death benefit and relevant coverage period when comparing quotes. Review exclusions, underwriting, riders, and the insurer’s details. A premium that is difficult to sustain can undermine the purpose of buying coverage.

If you already have a policy, understand the cost and consequences of changing it before canceling anything. New coverage may require underwriting and may have different terms. Keep the beneficiary designation current and review the need when household circumstances change.

1. Estimate the financial need and its duration.
2. Compare premiums for relevant coverage amounts.
3. Read guarantees, renewal, loan, and surrender terms.
4. Verify beneficiaries and keep the policy records accessible.

Sources: NAIC: Life insurance buyer’s guide · NAIC: Comparing types of life insurance