Life Insurance, Whole vs. Term: Which is Better?

Shawn Plummer

CEO, The Annuity Expert

There are a lot of different types of life insurance policies available on the market, and it can be difficult to decide which one is right for you. In this guide, we will compare whole life insurance and term life insurance and help you decide which one is the best fit for your needs.

Term Life vs. Whole Life Insurance (At A Glance)

What is the difference between whole life and term insurance? When it comes to life insurance, there are two main types: term and whole life. So which one is right for you? Here’s a look at the key differences between these two options:

  • Term life insurance is a policy that provides coverage for a specific period of time – usually 10, 20, or 30 years. If you die during that time period, your beneficiaries will receive a payout from the insurance company.
  • Whole life insurance is a policy that covers you for your entire lifetime. Your premiums will be higher than with term life insurance, but the coverage is permanent.

Which type of life insurance is right for you depends on your needs and budget. Consider both options carefully before making a decision.

You can get lifelong coverage and support with whole life insurance. Term life insurance is cheaper, but you only get coverage for a certain amount of time. If you die prematurely, your family will have the money to do things like pay for funerals, mortgage payments, college tuition, or other expenses with either type of life insurance.

FeatureTerm LifeWhole Life
Length Of CoverageYou choose a term length based on your needs, between 10 to 40 years. Your coverage will last for your lifetime as long as you keep paying your premium.
PremiumsTerm life premiums are usually the cheapest.Whole life insurance premiums are more expensive than term insurance premiums for the same coverage.
Medical ExamYou don’t always need a medical exam.Most of the time, you will need to have a medical exam.
Guaranteed PayoutIf you continue to pay your premiums, you will be guaranteed a payout for the duration of your term.If you continue to pay your premiums, your payout will be guaranteed for the life of the policy.
Cash ValueA term life policy does not have a cash value that grows over time.A whole life policy can grow money without being taxed.

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What is the difference between term life insurance and whole life insurance?

  • Term life insurance is the simplest type because it covers you for a fixed time period. It’s also the cheapest type of coverage. However, if you don’t die during that time, then no one will receive any money. Terms range from 5 years to 40 years in length.
  • Whole life insurance is more expensive, but the policy has its own benefits too. One of those benefits is that you can use the money in the account (cash value) for later in your life. Also, whole life insurance covers you until you die, while term insurance only lasts a certain amount of time.
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Whole life and term life insurance: The Basics

What is term life insurance?

Term life insurance is called pure life insurance because it only protects your dependents. If you have a term policy and die when the insurance is active, the beneficiaries will get the death benefit tax-free.

You choose how long the life insurance policy lasts when you buy it. A common term is ten years, but you can do 20 years or 30 years. The cost of the policy stays the same throughout the life of your plan, and so does the payout.

Tips When Shopping For Term Life Insurance

  • The term for life insurance is the number of years you will be paying bills. Choose a term that will help protect your family if you die—for example, purchasing a 30-year term to reflect your bills on a mortgage payment.
  • If you were not around, your family would need a certain amount of money to live to maintain their current lifestyle. Purchase an amount that will reflect their monthly expenses.

Ideally, your need for life insurance will end around the time the term life policy expires: Your kids will be on their own, you’ll have paid off your house, and you’ll have plenty of money in savings to serve as a financial safety net.

What is whole life insurance?

Life insurance that provides lifelong coverage is called whole life insurance. The premiums will accrue interest tax-deferred while the policy is active.

You can borrow money against the account through a loan. There will be interest to pay on the loan, and if it’s not repaid, the death benefit for beneficiaries will be reduced. You can also surrender the policy for a cash payout as well. There may be fees and surrender charges involved. If you surrender the full policy amount, you will no longer be covered.

Whole Life Insurance Highlights

Some whole life insurance policies earn dividends. You can take these in cash, leave them in your account to earn interest, or use them to decrease your premium payments or repay policy loans. Dividends are not guaranteed.

Life Insurance Whole vs. Term: How Much Does It Cost?

Term life insurance is cheaper because it only lasts for a limited time. Your beneficiaries will not get any money if you live beyond the end of your term. Whole life insurance is more expensive because it lasts for your whole life and has a cash value that earns a guaranteed return on cash value.

Below are monthly price comparisons between term life and whole life insurance. The most common term length is 20 years, and we will use a $1 million life insurance policy for the coverage amount.

Person coveredWhole life20-year term life
30-Year Old Male$569$31
30-Year Old Female $513$24
40-Year Old Male $879$49
40-Year Old Female$799$41
50-Year Old Male $1,421$133
50-Year Old Female$1,287$96

Term vs. whole life Insurance: Factors To Consider

Purchase term life insurance if you:

Purchase whole life insurance if you:

Advantages of Term Insurance

Term life insurance is often used to provide a lot of coverage at a low cost. It can help people with limited incomes buy more coverage than they might otherwise be able to afford with whole life insurance.

Disadvantages of Term Insurance

  • Over time, renewable term insurance becomes more expensive. Although the initial level term premium is low, it rises with each renewal as a result of the insured’s increasing age and mortality risk for the insurer.
  • The insured may be left without insurance at a time (when they are older) when protection is required the most, owing to the fact that term insurance offers coverage for a set period of time.
  • Term insurance offers no living benefits such as guaranteed cash values.
  • Even if the policy is renewable, it seldom lasts beyond a certain age, such as 65 or 70.

Advantages of Whole Life

  • The major benefit of whole life insurance is that it is permanent coverage and may be utilized to meet long-term requirements such as death, dying, and final burial expenses.
  • The level premium allows the policy owner to know precisely how much insurance will cost and offers a form of coerced savings.
  • Whole life insurance allows the policy owner to use some of his or her money for emergency expenses, as a supplementary retirement income source, and for other long-term care insurance.

Disadvantages of Whole Life Insurance

  • The premium-paying period may be longer than the insured’s earning years.
  • Term insurance, on the other hand, provides more protection per premium dollar than whole life.

Calculator For Whole and Term Life Insurance

Compare Whole Life Insurance With Term Life Insurance

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Conclusion

At the end of the day, it’s important to understand that there are pros and cons to both term and whole life insurance policies. Which one is right for you depends on your specific needs and goals. If you’re not sure which policy is best for you, we can help. Request a quote today to see how much coverage you could get with a term or whole life insurance policy.

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Frequently Asked Questions

What is better term or whole life?

Term life insurance lasts for a specific amount of time. Whole life insurance lasts for your entire lifetime. Whole life is more expensive than term life insurance, but the coverage is permanent. Most of the time, you will need to have a medical exam for whole life, but term life does not always require one. Term life does not have cash value for savings, but whole life does.

What is the difference between whole life and term life insurance?

Term life insurance is a simple and inexpensive option that covers them for a certain amount of time, usually 10 to 40 years. Whole life insurance protects you for the rest of your life while also including a cash value component that builds over time.

What is Whole Life Insurance vs. Term?

There are two main types of life insurance- whole life and term. Whole life insurance policies are permanent, meaning they last for your entire life. Term life insurance policies, on the other hand, only cover you for a specific period of time, after which the policy expires.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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