When planning for end-of-life, life insurance and its associated products including whole life insurance, term life insurance, and final expense insurance are products that you come across often. Unless you are a licensed insurance agent specializing in life insurance, it is easy to get confused and overwhelmed by the variety of products available to you.
To help you understand the high-level differences in these products, we have outlined them below.
Whole Life Insurance
Whole life insurance “is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided required premiums are paid, or to the maturity date.”
What that means in plain English is that once you sign up for a whole life policy, it will never expire and the rate will never change so long as you continue to pay the premiums - the monthly or annual cost. When the insured dies, the insurance company will pay the death benefit - also called the “payout” or “face value” of the policy - to the listed beneficiaries.
Because whole life insurance premiums don’t change as you age, the premiums are often higher than a similar face-value term life policy which expires at a specific time - more on that below.
Final Expense Insurance
Final Expense insurance, also called funeral insurance or burial insurance, is one type of whole life insurance. Final expense insurance is geared towards seniors who wish to have funds allocated specifically for funeral expenses, though in theory they could be used to pay for anything.
Final expense policies are smaller face-value whole life insurance policies. Their face values typically range from $1,000-$50,000, though the average policy amount is closer to $5,000-$10,000.
Since final expense is a whole life policy designed for the senior demographic, the premiums tend to be higher as well.
Term Life Insurance
Term Life insurance policies have a fixed term, or length like 10, 20, or 30 years. When the policyholder reaches the end of the term and is still alive, the policy expires and no one receives any money.
Some term life policies can be converted to whole life by a specific date. If not, to continue to be covered by a life insurance policy, you will have to submit a new application, get new pricing and enter into a new contract.
The benefit of a term life policy is that it is often less expensive than a whole life policy for the same face value.
Get All the Details
There are many more sub-types of life insurance and nuances to life insurance policies than are outlined above. It is important to work with a well-trained broker or agent who can talk with you to understand your goals for getting life insurance. Then they can narrow down the products most appropriate for your situation and more thoroughly outline all of the policy details with you. Be sure to get a side-by-side comparison of the products you are considering before deciding which one would be the best for you and your situation.
For more details on whole life vs term life policies, we found the NerdWallet to be a great resource.
