Quora Answer: Why is Term Life Insurance Better Than Whole Life Insurance?

The following is my answer to a Quora question: “Why is term life insurance better than whole life insurance?”

Neither are better than the other.  They have different functions and uses.  When a person is young, and able to afford it, it is always better to get whole life.  Whole life has a surrender value, and may be used as a financial instrument.  As the name suggests, the coverage is for life, which means the policy matures when the insured reaches age 100.  The premium of a whole life policy is calculated based on a specific quantum paid out from the age of life expectancy less the age of entry.  As such, the younger you are, the cheaper the regular premiums are,

A term life provides coverage for a term.  This may be for as little a three or five years, to as long as 25 or 30 years.  There is no surrender value, and upon completion of the term, coverage ceases.  Should the insured choose to continue coverage, the premium is considered to start at the new age of entry, and will be significantly higher.  This means, over the course of a lifetime, the premiums paid are actually higher.

Term life is used to top up coverage temporarily, or to secure initial coverage when whole life is beyond the insured’s budget.  The policy may then be converted with no underwriting, which is a huge advantage.  In business planning, a term policy is used to cover the cost of paying out to the estate of the director without impacting the cashflow of the business.  This policy is owned by the company.