If you are thinking about purchasing life insurance, you may be wondering what the difference between term and whole life insurance. Both types of insurance policy pay upon death of the insured. While they are similar, there are some marked differences between the two types of policies.

Term Life Insurance is just that, it is based on a fixed term, or number of years. When you sign up for a term life insurance policy, you decide how many years (terms) you want the policy to be for. The most common terms for this type of insurance are 10,15,20, or 30 years. Term life insurance is often referred to as a pure death benefit policy. This means that the policy will only payout after the insured is deceased. This type of coverage is often used to supplement or cover the decedants financial obligations.

Whole Life Insurance is an insurance policy that remains intact until for the whole life of the insured. People with this type of policy often pay a level premium based on their age and health condition. This type of policy differs from term, in that there is actual cash value that builds up over time. This cash value can even be used as collateral. Another major difference is if the insured reaches the maximum age, usually between 95 and 100, their benefit becomes payable with interest. This type of policy also guarantees that there will be coverage when the insured is dead.

Above I have described the differences of Term life insurance vs whole life insurance. Term life insurance is great if you have health conditions or age restrictions that prevent you from affording a whole cheap insurance policy. However, if you qualify for a whole life policy, it is usually the best choice because it builds up cash value that can be cashed in or even used as collateral.