Eleos Life explains the key differences between term and whole life insurance

Life insurance comes in different forms, and each type is designed to meet different needs.

After previously discussing term life insurance, Kiruba Eswaran, CEO of Eleos Life, returned to We Are Austin with Sierra Waggoner to talk about whole life insurance and how it compares.

“Whole life is a life insurance product that lasts your whole life,” Eswaran said.

How whole life insurance works

As with term life insurance, a whole life policy lets a person choose a coverage amount. A major distinction is that whole life can also build cash value over time.

“The coverage always lasts your whole life, and a cash value starts building up inside,” Eswaran said.

That cash value may later give policyholders options while they are still living.

“The most common is you can borrow against it,” Eswaran said, noting that the cash value is usually limited in the early years but can increase over time.

Another possibility is to surrender the policy and receive the available cash value, though Eswaran said taxes and other charges may apply.

How it differs from a funeral home plan

Eswaran also pointed out that whole life insurance is not the same as a plan purchased directly through a funeral home.

“Whole life insurance, or life insurance as a whole, pays the beneficiaries that amount,” he said. “So it’s really up to them to decide what they want to do with the money.”

By contrast, a pre-need plan through a funeral home usually pays for a specific package of funeral goods and services.

Eswaran recommends reviewing exactly what is included and asking about portability, including what would happen if you moved to another state or if the funeral home closed.

What happens if payments become difficult?

Financial situations can change, and Eswaran said insurance policies usually include a grace period instead of canceling coverage immediately after a missed payment.

“It’s not like you don’t pay and they immediately cancel your policy,” he said, adding that the grace period is generally about 30 days.

Depending on the policy, other options may include surrendering the policy for its available cash value or applying the accumulated value toward a smaller amount of coverage.

Term life or whole life?

Eswaran said consumers do not necessarily have to choose one over the other, since the two products can serve different purposes.

“They have a different role to play,” he said.

Term life can help cover financial responsibilities that eventually end, such as a mortgage. Whole life can help with needs that may last throughout a person’s lifetime, including funeral costs or leaving money behind for loved ones.

Cost is another important difference

“One thing you have to remember is that whole life is an expensive product,” Eswaran said.

For some people, a mix of both may make the most sense.

“You can have a lot of term life, a little bit of whole life to cover those things that you want,” Eswaran said.

For more information about Eleos Life and its life insurance options, visit EleosLife.com.