What Is The Difference Between Short Term Life Insurance And Long Term Life Insurance?
Life insurance is an essential component of financial planning. It ensures that your loved ones are financially protected if you die. However, choosing the right type of life insurance can be confusing. The two most popular types of life insurance are term life insurance and whole life insurance. Here is a brief overview of the difference between the two:
| Type of Insurance | Description | Pros | Cons |
|---|---|---|---|
| Short-term life insurance | Covers you for a fixed period, such as 10, 20, or 30 years, and pays out if you die during the term. If you outlive the term, your beneficiaries don’t receive any money. It is a type of level term life. | Most affordable life insurance available. Ideal for covering a specific financial obligation. | Temporary coverage, and has no cash value. |
| Long-term life insurance | A type of permanent life insurance that offers coverage that matures late in life—at 90, 100, or 120 years old, in some cases. It also has a cash value component. A portion of your premium goes toward the cash value, which can grow over time. | Covers you for your entire life. Builds guaranteed cash value. Pays a death benefit whenever you die. | More expensive than short-term life insurance. Cash value loans or withdrawals may reduce the final death benefit. |
Term life insurance is often the most affordable life insurance because it’s temporary and has no cash value. Whole life premiums are much higher because the coverage typically lasts your lifetime, and the policy grows cash value. Term life insurance is sufficient for most families, but whole life and other forms of permanent coverage can be useful in certain situations.
If you need lifelong coverage but want more flexibility than whole life provides, consider other types of permanent life insurance such as Universal life insurance, Variable life insurance or variable universal life insurance, and Indexed universal life insurance. However, these other options often have varying costs and features depending on the type of coverage you buy and the performance of your cash value.
Ultimately, choosing the right type of life insurance depends on your individual needs and financial situation. Consider consulting with a fee-only life insurance consultant to help you make an informed decision.
