Group term vs. whole life insurance: Key facts to know

When it comes to buying life insurance, many consumers are confused about how some policies pay out dividends while others simply protect your loved ones upon your death.

That’s because there are two primary types of life insurance: Group term and whole life. The former is meant to last over a given time period, with certain amounts of money paid out to your beneficiaries if you pass within that time period. The latter is an investment without an end point; it allows you to earn interest (and sometimes dividends) on your total investment, acting as an asset you can spend while still alive or save for others after you pass.

Unfortunately, confusion involving those different products may cause some consumers to underestimate the amount of life insurance they need. In fact, a 2020 Policygenius report found that only 57% of American adults carry life insurance of any kind — and 32% of them only carry group term.

Group term: Affordable and effective coverage when you need it

To summarize some of the key features of group term:

  • It’s easier to buy and much more affordable than whole life, generally costing six to 10 times less, according to Policygenius.
  • It pays out only if you die during the term stated on the policy.
  • It’s typically purchased for 30 years of time or less.
  • It gets more expensive as you age, particularly when you hit age 50. Policygenius notes that insurance costs rise by an average 8% each year, assuming your health stays the same.
  • It must be renewed to extend beyond stated term lengths.
  • It’s sometimes used to supplement more permanent policies.
  • It can be rolled into a whole life policy.

Whole life: An investment that retains its value

To summarize some of the key features of whole life:

  • It covers you for your entire life.
  • It results in not only death benefits, but a cash value that earns interest over the life of the policy.
  • It usually requires a health examination; policies that don’t require exams are available at more expensive rates.
  • It typically takes 12 to 15 years to accrue a significant cash value.
  • It can be a key part of estate planning.
  • Part of the cash value can be withdrawn or borrowed during the life of the policy.
  • It’s often considered more expensive than group term because it imposes more expensive premiums, but in some cases a long-term policy ends up being less expensive than group term.

Making smart choices with your money

So how do you know which vehicle is a better investment for you? Your agent can help you determine which kind is bound to offer more rewards for you and your family based on your specific circumstances. Note that prices can also vary widely by vendor; Policygenius reports that the average difference between the least expensive and most expensive costs, across insurance companies, is about 50% for the same person/policy.

In general, life insurance vendors take into account the following when recommending and pricing your policies:

  • Your age
  • The state of your health
  • Your family’s financial needs
  • The extent of your funeral plans
  • Your children’s ages
  • Your projected health expenses (especially in the event of a serious illness)
  • The balance on your mortgage and your other outstanding debts
  • Your plans and existing financial resources for retirement
  • The future needs of your family, e.g., college tuition, business funding, etc.
  • Whether your policy should be set up in a trust as part of your will

Call the specialists at Ochs (651-665-3789) for help in finding the ideal life insurance option that can meet your unique needs.