How to choose between Term and Whole of Life insurance

So perhaps you’re starting to learn a little about personal insurance. If you have considered either life or critical illness insurance, one thing you may have heard about is term and whole of life (WOL) products - perhaps you’re wondering which one is more appropriate for you - this post may help you decide.

What do they apply to:

Term cover will apply to pretty much every type of insurance available. Medical insurance, life insurance, car insurance, travel insurance, you name it.

On the other hand, WOL cover typically only applies to Life and Critical Illness cover. This means that if you were to pass away or contract a critical illness, a predetermined lump sum amount will be paid to you or your beneficiaries.

How do they differ

Term insurance is like renting a property whereas Whole of Life is like buying a property.

Term Insurance: This is your run of the mill style of insurance which everyone knows about; you pay for your insurance which will cover you for a set period i.e. annually, and you renew after every period if you still want cover. No matter what, the cost is an expense and you’ll never get your premiums back. In that way, it’s kind of like renting.

Whole of Life Insurance: This is less well known but as the name suggests, with whole of life cover, you are potentially insured for the rest of your life. You set a payment term (e.g. 10, 18, 25 years) and during this period you pay your premiums. Once you have finished with the payments, you no longer need to pay in but you continue to be protected. If you decide later down the line that you no longer want cover, your policy has a cash value so you will be able to surrender your cover to release money. In this way, it’s like paying a mortgage and having a house to live in.

Key things to consider:

• What is your budget - if you budget is tight but you see the need for cover, term is probably more suitable.
• How much cover do you need - if something were to happen to you and you were not able to work or didn’t return home, how much money would you loved ones need?  
• How long do you want cover for - A WOL policy is something you are guaranteed to use, provided you never surrender. So if you want cover until you are old, a term policy can get very expensive in your later years - do you want to still be paying for insurance once you’ve retired?
• How good are you at investing money - One argument many put forward for buying term cover is that you can take the additional cash and invest it for greater returns than the WOL policy. This can sometimes be a valid point but are you actually investing at the moment and what are your returns? 
• Are you saving for your future - If you are not saving for your retirement or other large future costs, a WOL plan can be one way of saving money whilst also getting your desired protection.  

In any event, it’s worth speaking to a financial advisor to make sure your insurance needs are taken care of and for them to give their 2 cents.