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

Shawn Plummer

CEO, The Annuity Expert

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

What Is The Difference Between Term And Whole Life Insurance?

When it comes to life insurance, there are two main types: term and whole life. Each has its benefits and drawbacks, so it’s essential to understand the difference before deciding.

  • Term life insurance covers a specific period, typically 10-40 years. The premiums are lower than whole life insurance, making it an affordable option for many people. However, if you outlive the term, the policy expires, and you are not eligible for death benefits.
  • On the other hand, whole life insurance covers you for your entire life. As a result, the premiums are higher, but the policy builds cash value over time that you can borrow against or cash in if you need to. Whole-life policies also generally have higher death benefits than term policies.

So which type of life insurance is right for you? It depends on your individual needs and circumstances.

For example, suppose you want coverage for a specific period, such as when your children are young, term life may be the best option. But if you want lifetime coverage with the added benefit of cash value accumulation, whole life may be a better choice.

Ultimately, it’s essential to work with a life insurance agent to help determine which type of policy is best for your unique situation.

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 your term.If you continue to pay your premiums, your payout will be guaranteed for the policy’s life.
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.

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 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 pay 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. So 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 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 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. You will no longer be covered if you surrender the total policy amount.

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.

Which Is Cheaper, Whole Life Insurance, Or Term Life Insurance?

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; 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:

  • You want to reduce estate taxes on the inheritance for your heirs.
  • If you have a child with disabilities, life insurance can help fund a trust to provide care for that child.
  • You want to leave money aside for final expenses, such as funeral costs.

Advantages of Term Insurance

Term life insurance often provides much 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 due to 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 because term insurance offers coverage for a set period.
  • 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 primary 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 lets the policy owner know precisely how much insurance will cost and offers coerced savings.
  • Whole life insurance allows the policy owner to use some of their money for emergency expenses, as a supplementary retirement income source, and as other long-term care insurance.

Disadvantages of Whole Life Insurance

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

Calculator To Compare Whole and Term Life Insurance

Compare whole life insurance with term life insurance with our calculator below.

Term And Whole Life Insurance That Doesn’t Require Medical Exams

Life Insurance No Exam
No Medical Exam Life Insurance

Next Steps

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.

What Is The Difference Between Term And Whole Life Insurance?

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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 a medical exam for your whole life, but term life does not always require one. Also, 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 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 and last for your entire life. On the other hand, term life insurance policies only cover you for a specific period, 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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