Why is whole life insurance much more expensive than term life insurance?
Whole life insurance is designed to last the â€˜whole of your lifeâ€™. Term life insurance will only be affordable during the term period. You may know someone who has been diagnosed with a serious illness, but how many people do you know who actually died in their 30â€™s, 40â€™s or 50â€™, or by an accident? Whole life insurance is priced, among other things, with the expectation that you will die with this policy in-force. Term life insurance is priced with the assumption that youâ€™re not going to die. Think about it... insurance companies are for profit entities. How would any term life company make any profit if, for example, a policyholder paying $1000 annually for $500,000 of insurance died while the policy was in-force?
Because whole life is designed to last, it builds cash value. Usually after 15 or 20 years, a whole lifeâ€™s cash value account will equal or exceed the total premiums paid into the contract, creating in essence a zero or negative net cost. On the other hand term life builds no cash value and has an ever increasing total net cost1
. Over the long term, youâ€™ll usually find that whole life is actually less expensive than term.
1 Dividends are not guaranteed. They are declared annually by Guardianâ€™s Board of Directors.