Why Are Whole Life Insurance Rates More Expensive Than Term Life Insurance Rates?If you've been shopping for life insurance, chances are you're gathering quotes and comparing the rates from the many different types of life insurance policies. As a result, you've probably noticed that the rates of whole life are typically more expensive than term life insurance. But have you wondered why that is?
The most common answer is that a whole life policy combines life insurance protection with a cash value that accumulates. You can use the cash value by withdrawing or borrowing against it* over your lifetime.
Life Insurance coverage that lasts a lifetimeBecause whole life insurance is a permanent policy, it's meant to last your entire lifetime (as long as required premium payments are timely made). This means that as long as you continue to maintain your premium payments, you'll have your whole life policy until you die. As a result of this lifelong coverage, higher premiums are reflective of the longer coverage period for a level premium, in contrast to a term policy where there is a limited time (term) in which the premiums are level.
Higher Life insurance policy feesWhole life policies often carry higher costs at policy issue and higher ongoing administrative costs than term insurance, therefore the insurance company needs to account for these additional costs. Ask your agent about the costs associated with a whole life policy before you buy, as well as a policy illustration that shows the projected, non-guaranteed and guaranteed cash value accumulation of a policy over time.
Finding an affordable life insurance policy
There are many factors that may contribute to the higher premiums of a whole life policy in contrast to those of a term life policy. And for some people, paying more for certain benefits is simply worth the extra costs. The key takeaway is to fully understand the type of policy you're considering buying so that you make an informed decision based on your individual needs and budget.
*Unpaid loans and partial withdrawals reduce cash value and death benefit.