Term vs. Whole Life Insurance: Which Is Right for You?

If you need life insurance, you can choose between term life insurance and whole life insurance. Both offer a death benefit that financially protects your loved ones, but they have several important differences.

This article will explore these differences, explain how each type of life insurance policy works, discuss differences in cost, and help you decide which form of life insurance may best meet your needs.

Key differences between term vs. whole life insurance

The main difference between term life insurance and whole life insurance is that term life offers temporary coverage, while whole life offers lifelong protection and includes a cash value component.1 Cost is another major difference — term life is typically cheaper, while whole life can come with higher premiums on average.

The table below outlines the key differences between term life insurance and whole life insurance:

How term life insurance works

Term life insurance offers temporary insurance. The insured person receives life insurance coverage for a certain term length — typically five, 10, 15, 20, 25, or 30 years.

The policy pays out only if the insured person passes away during the policy term. If the insured doesn’t pass away during the policy term, they may be able to renew the policy — though it may be more expensive.

Overall, term life insurance is cheaper than whole life insurance. You’ll pay fixed premiums for the duration of the insurance term. Unlike whole life insurance, term life policies have no cash value component.

How whole life insurance works

Whole life insurance offers lifelong protection. Your policy lasts for the entirety of your life and isn’t tied to a specified term length. You’ll pay fixed premiums for the duration of the policy, and your beneficiaries will receive a guaranteed death benefit.

A whole life insurance policy also builds cash value. Life insurance premiums typically get more expensive as you age — but whole life insurance policies have fixed costs. To even this out, your premiums start out higher. As your policy continues, it’ll accrue a cash value that you can borrow against for certain purposes.2

The cash value you accumulate is tax-deferred.

Premium comparison: Term vs. whole life insurance

Generally, term life insurance is cheaper than whole life insurance. A term life policy covers you only for a portion of your life, while whole life protects you for your entire life. Given this difference, term life is cheaper.

The following table compares the premium costs of $500,000 in term life and whole life insurance for different age groups.

As you can see in the table above, whole life policies are significantly more expensive. For example, a 45-year-old man may pay $76.61 per month for a 30-year term life policy and $265.08 per month for a whole life insurance policy. Across the board, women pay lower monthly premiums, regardless of whether they have a term life policy or a whole life policy.

Pros and cons: Term vs. whole life insurance

No two people have the exact same financial situations or long-term financial goals. For that reason, every financial product has advantages and disadvantages that make it a better fit for certain people. The sections below highlight some pros and cons of term life insurance and whole life insurance.

Term life insurance

Whole life insurance

Term vs. whole life: Which should you choose?

Ultimately, the choice between term life insurance and whole life insurance depends on your individual circumstances and financial goals. Most simply, term life is best for people who want low-cost temporary coverage. Whole life insurance is best for people who want long-term coverage that may build cash value over time.

One type of buyer who might benefit from a term life policy is a young parent. They can purchase a temporary policy that covers their children during their dependent years. Another good candidate is a new homeowner who wants to ensure their spouse can keep the home in the event that anything happens to them.

As for whole life insurance, an older person who has maxed out other retirement savings options accounts might benefit from the tax advantages of whole life insurance. Additionally, a parent of a child with special needs might want a whole life policy to provide financial protection for the entirety of the child’s life.

Alternatives to term life and whole life insurance

While term life and whole life insurance policies make up the bulk of life insurance policies, insurance shoppers have some other options. Here are a few alternatives to consider:

• Universal life: A subcategory of permanent life insurance, universal life allows some flexibility in terms of your premiums and death benefit.

• Variable life: In this scenario, you can choose the investment vehicle your cash value goes toward (such as stocks and bonds) depending on your risk tolerance. Interest rates and stock performance will affect how much cash value you accumulate, as well as your death benefit.3

• Indexed universal life: With an indexed universal life policy, your insurer will invest your cash value in an index fund (for example, the S&P 500) rather than allowing you to choose your investments.4

• Group life: This is an employer-sponsored life insurance program that may or may not generate cash value. Regardless, you might get the convenience of handling premium payments through payroll deductions.

• Final expense insurance: Also called burial insurance or funeral insurance, this lower-cost life policy pays for end-of-life expenses, like funerals and cremations.

Term vs. whole life FAQs