Comparing Term vs Whole of Life Insurance
Term Vs Whole of Life
The main difference between term and Whole of Life insurance is cost and length.
One will cover you for a set term while the other is designed to cover you until you die. Although term insurance is cheaper, there are many benefits to choosing Whole of Life insurance should it be an option.
Whichever one pays out, it can be used to cover a multitude of costs from funeral expenses, education fees or basic living expenses.
What is Term Life Insurance?
A Term Life Insurance policy will pay out a lump sum to your beneficiaries should you die during the term agreed in your policy.
It is a policy designed to cover you for a fixed period of time. These terms usually range between 10, 20, or 30 years.
If you outlive the term agreed in your policy, your coverage will end and no benefits will be paid.
Benefits of Term Life Insurance
A major benefit of a term insurance policy is simplicity. It is one of the most simple and cost-effective forms of life insurance.
It is also a way for you to help provide for your family should you pass away. The lump-sum benefits your estate will receive can be used to pay for educational costs, funeral expenses or to help maintain a standard of living.
A 30-year-old non-smoker can avail of a 25-year term insurance policy with €250,000 cover for approximately €21 per month.
Drawbacks of Term Life Insurance
A drawback of Term Life Insurance is the fact in some cases the premiums may rise significantly.
Another aspect to consider is that many of us outlive our policies. This means it cannot be used as means of inheritance planning in many cases.
What is Whole of Life Insurance?
Whole of Life Insurance is a policy that will cover you for life. As there is no fixed term in place, your insurance will not expire until you die.
Whole of Life cover will remain in place as long as you continue to pay the premiums. This type of policy has a higher cost than a Term Life Insurance policy.
It is also worth noting there are two different types of Whole of Life insurance policies:
- Guaranteed – With a Guaranteed Whole of Life policy, the premiums are fixed. This may come at a higher cost initially but is worth its weight in gold.
It will mean your premiums will be fixed and you will not be required to supply evidence of good health at a later date.
- Reviewable – With a reviewable Whole of Life policy, the insurer can review the premiums every 10 years.
As you get older, the premiums will likely dramatically increase making them increasingly difficult to afford.
Benefits of Whole of Life Insurance
A major benefit of a Whole of Life policy is a certainty. Particularly with the guaranteed option. Once you pay your premiums, you know there will be a benefit left to your next of kin.
You also have peace of mind knowing your premiums will remain fixed throughout the policy. This type of policy can be an effective way to help plan for inheritance in a tax-efficient manner.
Drawbacks of Whole of Life Insurance
Cost is a major drawback of a Whole of Life insurance policy. It is significantly more expensive than a Term Life Insurance policy.
Premiums can be on average, five to ten times more expensive per month. This rules it out as an option for many people.
Term vs Whole of Life Insurance- features
Term life insurance and Whole of Life have some differences. They are designed to cover different situations and therefore do not have a lot of overlap.
Term Life Insurance
Whole of Life Insurance
Ability to choose policy length
Guaranteed to pay a lump sum
Premiums remain the same throughout
Lower initial premiums
Term vs Whole of Life Insurance - cost
Term Life Insurance is cheaper although this is due to it being temporary and having no guaranteed value at the end.
If feasible, a Guaranteed Whole of Life policy would be recommended. However, it may not be a viable option in all situations.
Should you want to explore Whole of Life insurance, it may be worth contacting our team. We have experience assisting clients in this area and would be happy to discuss potential options and answer any questions you may have.
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How to choose between Term and Whole of Life Insurance?
Choosing your policy will be specific to your situation. In some cases, a term insurance policy will be sufficient. In others, a more long-term plan may be required.
Term life insurance may be recommended if:
- You only require life insurance for a short period of time. Most people take out a Term Life Insurance policy when their children are young. The aim may be to cover the children into adulthood.
- A low-cost policy is required. As Term Life Insurance is significantly cheaper than Whole of Life, it may be the only realistic option.
- You want long-term cover eventually. Having a Term Life Insurance policy with a conversion option may be a route to long-term cover.
Whole of Life insurance may be recommended if:
- You can afford the higher premiums. If you are in a position financially where you can afford higher premiums long-term, Whole of Life is recommended.
- Inheritance planning is an objective. A Whole of Life insurance policy can be used as a way to relieve your estate of potential inheritance tax liabilities.
- You want security and peace of mind. Once you continue to pay your premiums you have the knowledge your loved ones will be taken care of after you pass away.
- You want fixed premiums. Should you choose the guaranteed Whole of Life option, your premiums will be fixed from the outset of the policy.
Is there anything else to consider?
The type of cover you choose will often boil down to what you can afford. However, any protection is better than no protection at all.
If this is the case, start with a basic Term Life Insurance policy with a conversion option. This will allow you to extend at a later date without having to undergo any medical examinations. It also means you do not have to renew the policy at that point should you wish.
In the case of those who can afford a higher premium, Guaranteed Whole of Life insurance is the recommended option. You will know exactly how much your premiums are each month and they will not rise into the future.
It is also an option for those looking to fund an inheritance tax liability. It can leave your beneficiaries with a lump sum to pay the tax liabilities that arise from your death.
Whether you are considering term insurance or Whole of Life, it is always recommended to speak with an advisor before making a decision.
At emero, we specialise in this area of advice and have a team on hand to help. If you would like to discuss your options, feel free to contact our team today.
- There are some important differences between Term Insurance and Whole of Life.
- You must die within the agreed policy term for Term Insurance to pay out.
- Whole of Life Insurance is more expensive but offers a guaranteed payment.
- If higher premiums are feasible, Guaranteed Whole of Life should be considered.
Ian is one of our Senior Financial Advisors at emero and has worked within the financial sector for the past five years. If you would like to chat with Ian directly, please get in touch with him at [email protected]