When shopping for the best life insurance policy, there’s a good chance that you’re searching for one that will provide you with the highest payout.
You can choose from two primary types of life insurance you can choose from include term life insurance and whole life insurance. If you want to choose a policy based on which one has the higher payout, the following guide should be helpful to you.
Whole Life Insurance vs. Term Life Insurance
Term Life Insurance
Term life insurance is straightforward. These policies provide you with coverage for anywhere from 10-30 years. If you pass away during this term, the insurance policy will pay out a death benefit to your beneficiaries. If you outlive this term, your beneficiaries won’t receive money since coverage will end.
New parents commonly purchase 20-year policies that provide coverage until their child becomes an adult. The death benefit and insurance premiums for most of these policies remain the same throughout the entire term.
Whole Life Insurance
Whole life insurance is a common form of permanent life insurance that usually costs more than a term life policy. These policies remain in place until you pass away. Even if you hold the policy for 50 years before your death, your beneficiaries will receive benefits as long as you continue to pay monthly premiums.
Whole life insurance comes with a cash value aspect that’s not available with term life insurance. A small portion of your premiums will be put into an account that grows over time. Once enough cash value has accumulated, you can borrow against this account. Your monthly premiums will always remain the same. As for the cash value account, it increases at a fixed interest rate.
Which Type of Life Insurance Has the Higher Payout?
There’s essentially no difference in the type of payout you can receive with a term life insurance policy and a whole life insurance policy. Your payout will be set when you first purchase your policy.
In general, life insurance is meant to replace wealth instead of increasing it. This means that life insurance only covers the maximum value of the individual being covered.
You’re the amount of the death benefit will likely depend on how much you currently earn. These policies tend to be around 6-10 times higher than your annual salary. Some insurance providers offer coverage as much as 25 times higher than your yearly salary. A higher payout means higher monthly premiums.
The Bottom Line
The amount of coverage you receive with a whole life insurance policy can technically be higher than the amount you obtain with term life insurance. Since whole life insurance policies offer cash value accounts, you can increase the amount of money you have access to as you pay your premiums.
Because the payouts associated with whole life insurance are similar to the ones that come with term life insurance, you should consider the other qualities of these policies when determining which is right for you.