What’s the Difference Between Term, Whole, and Permanent Life Insurance?

Question: My wife just got pregnant with our first of hopefully three kids. So now I’m trying to do the responsible dad thing and figure out what kind of life insurance to get. But every time I Google it, I get conflicting advice about “term,” “whole,” and “permanent” life insurance. You’d think the Internet would help me, but it’s actually confused me. Which one should I get?

Mason in Texas

Sa El, Co-Founder of Simply Insurance answers…

First… don’t feel alone, this is the question that I get asked most often, so let me break it down.

There are two primary types of life insurance policies, Permanent Life Insurance and Term Life Insurance.

Whole Life Insurance is a specific type of Permanent Life Insurance but most often people use them interchangeably.

Whole Life Insurance

• Lasts for your entire life as long as premiums are paid
• Builds cash value that can be borrowed against
• Premiums can easily match the cost of a car note.

Personally, I never recommend Whole life insurance to anyone because it can become a complicated product and the average person probably won’t be able to afford the premiums on a monthly basis.

While it does feel good to know that you are covered for your entire life, it does come with a major cost in monthly premiums.

Term Life Insurance

• Lasts for a specific term length (usually 5, 10, 15, 20, or 30 years)
• Does not build cash value
• Monthly premiums are extremely lower, closer to the price of a daily coffee.

Term life is really simple and you can even get coverage online within minutes compared to most Whole Life Products.

While it might seem odd to only cover yourself for a certain amount of time, the idea is that as you get older your kids will be older and your obligations will be paid down and much lower.

What’s the best option and how much coverage do you need?

Now that we know the differences between the two let me give you my personal and professional opinion.

Go with Term Life Insurance: You guys just got pregnant and expect to have more kids in the future. A term policy will give you the flexibility of buying a policy with a 20 or 30-year term at a super low rate today and in the future, all you will need to do is add the new kids to the policy when they are born.

My advice would be to try and calculate how much total coverage you will need for your wife and 3 kids.

The fast way to do it is to just purchase between 10X and 20X your annual income, this means if you make $75,000 per year you need between $750,000 up to $1.5 Million in coverage.

If you want to do it the long way then you should ask yourself a few questions like how much money would your kids need to go to college if something happened to you?  Do you still have a mortgage on your home or a car note? Any credit card debt? How long would your family need money to survive without you around?

Whatever method you choose it’s best to start sooner than later because locking in your monthly premiums today for 20 or 30 years is going to save you a ton of money in the long run.

One last thing…

Both of you need life insurance, your wife should have the same amount of coverage that you have.  It’s amazing that you are looking for coverage for yourself, but both of you need to be covered.