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December 31, 2021
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Term Life Insurance vs. Whole Life Insurance
While there are many types of life insurance, two of the most common are: term and whole life.
Term life insurance has a straightforward goal: to provide the policyholder with a certain amount of coverage during a designated time period—perhaps 15, 20, or 30 years. When that person dies within the predetermined time frame, then beneficiaries typically receive the payout of the policy.
Premium payments on term life insurance are typically fixed. Once the term expires, then the coverage ends, even if the policyholder is still living. (Some insurance providers may allow policyholders to extend the term of the policy for a cost).
People who purchase term life insurance policies may figure that, by the time the policy ends, they will have enough money in savings. Or they might think that, by the expiration date, beneficiaries listed in the policy will be financially independent. In either case, there may not be a need for coverage for their entire lifetime.
Whole life insurance works differently. As with term policies, there are also regular premiums that need to be paid—but whole-life premiums can be greater than term life payments. That’s because part of the premium in a whole life policy goes towards a cash value that can be borrowed against.
One other key difference: Whole life insurance doesn’t have an end date, like term insurance, so the policyholder could have this policy for their entire lifetime.
In short, whole life insurance can be in force for a person’s entire life. It often has an investment cash-value component incorporated into it, too. That said, the whole life insurance policyholder does not have the ability to determine how that cash-value will be invested.
A Life-and-Death Question
It all comes back to that big question: If you don’t have life insurance and you were to die unexpectedly, how would the people you care about be affected?
Life insurance is about protecting your loved ones so they won’t have to struggle financially when you pass away. And it can remove any burden they might have to take on if you’re carrying debt when you die.
If life insurance feels like a good fit for your financial plan, check out what SoFi Protect has to offer. As your life changes, you can always increase or decrease your coverage to suit your needs.
Deep Dives from SoFi Learn
8 Reasons Why Life Insurance Is Actually Important Every person’s financial situation is different. Knowing why life insurance is important for your own financial plan could be helpful in choosing a policy that best fits your needs. Read more >> Life Insurance Definitions & Terminology, Explained Need help understanding the language and terminology of life insurance? Read these life insurance terms and definitions to get clarity. Read more >> Popular Types of Life Insurance for Any Age There are different types of life insurance to suit all ages. From term to whole life and more, here’s what you should know about each kind. Read more >>Financial Planner Tip of the Day
"Ideally, your life insurance payout should be enough to invest and yield returns that could replace your income annually. For example, if you assume that you’ll get a 5% return on the money you invest, you would need $1 million in coverage to replace a $50,000 income."
Brian Walsh, CFP® at SoFi