3 Reasons Term Life Policies Are Better Than Whole Life Coverage

The benefits of term life coverage may make this type of policy the right choice for many people.

When buying life insurance, consumers need to decide if they want term life coverage or whole life coverage. For many, term life is the better choice and there are multiple reasons why. Here are three big advantages of term life insurance vs. whole life insurance coverage.

1. Term life is cheaper

Whole life policies have much higher premiums than term life policies do. In fact, the coverage could be as much as five to 15 times cheaper for consumers who opt for term life coverage.

That said, premium cost isn't the only thing for an insurance buyer to consider. Consumers buying insurance also want to make sure they're getting the full protection they need. But the vast difference in cost may mean that a term life policy is affordable while a whole life policy could be out of many people's price range.

2. Term life doesn't provide unnecessary coverage

Consumers need the right life insurance to provide for their loved ones in the event of an untimely death. No policyholder wants to leave surviving family members without the money they need to maintain their standard of living.

For many people, however, whole life insurance offers unnecessary coverage -- while term life policies provide just the right level of protection. That's because, at some point in their lives, most people do not need life insurance any more.

Life insurance is needed only while someone is dependent on the policyholder's income, or the services the policyholder provides -- such as taking care of aging parents or kids. But typically people don't earn income forever or have people depending on them forever.

Once a person has amassed enough wealth that their earnings are no longer necessary, or once children have grown or parents have passed, there may no longer be a need for a life insurance death benefit.

But whole life policies remain in effect for life, as long as premiums are paid and the policy isn't canceled. On the other hand, term life policies pay only if the covered person dies during the policy term.

Those who buy whole life coverage pay extra for the privilege of having lifetime protection, even though it's rarely needed. There are very limited situations where someone will always need coverage such as when they have a disabled child that will always be dependent.

Outside of these circumstances, there's no reason to pay extra to keep coverage in effect after the point when a death benefit would be needed.

3. Term life doesn't force you into an expensive investment

One argument in favor of whole life insurance is that it serves as an investment, not just insurance coverage. Policies accrue a cash value, and policyholders can access the money they've amassed.

The problem is, the return on investment that whole life insurance provides is generally below the return that can come from other investments. And there are typically many restrictions on when and how the money from a whole life policy can be accessed.

Many people are better off opting for term life protection with more affordable premiums and investing any extra they would have spent to get a whole life plan instead.

For these three reasons, term life insurance is typically the better choice.