Whole life insurance is a type of permanent life insurance that provides a guaranteed death benefit payout to your beneficiaries regardless of when you pass away, provided premiums are paid. The key features of whole life are its level premium, which is guaranteed to remain the same throughout the policy's life, and its cash value component. A portion of each premium payment is directed into the cash value, which grows at a guaranteed, fixed interest rate on a tax-deferred basis. This cash value acts as a financial asset that the policyholder can access during their lifetime, often by taking out a loan or making a withdrawal, though accessing the cash value can reduce the death benefit. Unlike term life insurance, which only covers a specific time period, whole life is designed for lifelong financial protection and estate planning.
Term life insurance is the simplest and most affordable type of life insurance, providing coverage for a specific, set period of time, known as the "term," which typically ranges from 10 to 30 years. You pay a fixed, regular premium for the entire duration of the term, and if you pass away while the policy is active, your beneficiaries receive a tax-free lump-sum death benefit. Crucially, this type of policy is temporary; it is designed to cover financial responsibilities like a mortgage or raising children, and it does not include a cash value or savings component. If you outlive the set term, the coverage simply expires, and no benefit is paid out, though many policies offer the option to renew at a much higher premium or convert to a permanent plan.
Final expense plans, also known as burial or funeral insurance, are small whole life insurance policies specifically designed to cover end-of-life costs like funeral, burial, or cremation expenses, and any remaining medical bills or debts. These plans typically offer lower death benefits, often ranging from $5,000 to $50,000, which makes the monthly premiums significantly more affordable than traditional life insurance. They are popular among seniors because they usually require no medical exam—applicants answer a few health questions (simplified issue) or are guaranteed acceptance regardless of health (guaranteed issue)—providing a quick and simple way to ensure loved ones are not burdened with immediate financial expenses after a death.