Whole life insurance vs term: What’s the difference between the life insurance policies?

Life Insurance is something that a person may take out, such as to get a mortgage application, or to give financial support to loved ones after one’s death. How does whole life insurance compare to a term policy?

There are a number of types of life insurance policies to choose from. This includes family income benefit insurance, decreasing term insurance, and whole-of-life insurance. The reasons for taking out life insurance may well vary, and this could affect the type of policy one looks to take out. How does whole life insurance differ to level term insurance in particular?

Level term insurance

Level term insurance is a policy which lasts for a pre-agreed number of years.

Should the policyholder die during that term, then a set amount will be paid out.

It can be used to cover a fixed debt - such as an interest-only mortgage.

Alternatively, it may be that this policy type is used to provide a lump sum for any dependents in the wake of the policyholder’s death.

The Money Advice Service has addressed the advantages of different types of life insurance. “Simple and affordable for most,” the service says of this option. According to The Money Advice Service, it’s best for those with dependents and an interest-only mortgage.

Whole life insurance

A whole life policy will cover the policyholder for the rest of their life. This means that no matter when the individual dies, their dependents will get a pay out. “This type of policy is typically more expensive than those that cover a set period of time,” the Money Advice Service warns.

While it may be more expensive than that shorter-term policies, it is guaranteed to pay out to dependents, provided that the policyholder keeps up with the required payments.

“It is generally used to provide money to cover a funeral or for inheritance tax planning,” the Money Advice Service website states.

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