Whole Life vs. Term Life Insurance

Jason Lee
Jason Lee

What’s the Difference Between Term and Whole Life Insurance?

Term and whole life insurance both have one big goal: to support surviving family members with a death benefit payment if the insured person passes away. Term and whole life also differ in one major way: Term life policies last a set number of years and only pay out if the insured person passes away during that time, whereas whole life never expires, meaning it effectively guarantees a payout.

What’s a death benefit? “Death benefit” is the technical term for a life insurance policy’s overall value. It’s the total amount an insurer would pay out if the insured person were to pass away while covered by their policy. The appropriate death benefit is unique to each person; you can start with an online life insurance calculator for a ballpark estimate of the right policy size for you.

What do term life insurance and whole life insurance have in common? 

While there are many differences between term and whole life insurance, the two products have quite a bit in common.

  • Guaranteed payouts: Both term life insurance and whole life insurance guarantee a payout of a certain amount of money if you pass while you are covered.
  • Monthly premiums: You pay for both policies the same way — with monthly premium payments.
  • Premiums stay the same: With both types of insurance, your premiums should stay the same throughout the policy’s duration.
  • Insuring companies: You can get a term or whole life insurance from the same companies.

Term Life vs. Whole Life Insurance

Term Life InsuranceWhole Life Insurance
Online quotes availableYesNo
Includes a cash value accountNoYes
Guarantees a payoutNoYes
Includes a death benefitYesYes
Typically costs$10-$40 per month²$200-$400 per month or more²
Lasts forUsually 10, 15, or 20 yearsYour whole life¹
Best forAlmost everybodyPeople with complex financial portfolios and estate planning needs

¹As long as the policyholder pays premiums in full throughout the duration of the contract
²For a healthy individual age 25 to 40

Should I Get Term Life or Whole Life Insurance?

It’s widely accepted among financial professionals that term life insurance is the right choice for most people, while whole life insurance works best for those with robust financial portfolios and complex end-of-life considerations. In more concrete terms:

Term life insurance offers affordable financial protection for

  • Parents (married or single)
  • People with mortgage payments
  • People with outstanding debts (student debts, business loans, etc.)
  • Anyone whose savings wouldn’t comfortably cover end-of-life expenses, like funeral costs

Main features for term life insurance

  • Coverage for a fixed period of time with an end date of coverage
  • Pays out a guaranteed amount to the beneficiary when the policyholder passes
  • Often can be renewed for a longer-term
  • Less expensive premiums than whole life insurance
  • Does not hold a cash value

Whole life insurance can be a sound investment for

  • People who have maxed out their IRA or 401(k) contributions and need a secondary way to save for retirement
  • People looking to set up a tax-free inheritance or trust for younger generations
  • Individuals or couples with extensive estate planning needs who might use whole life insurance as an estate management fund with tax benefits

Main features for whole life insurance

  • Coverage for as long as premiums are being paid
  • Pays out a guaranteed amount to the beneficiary when the policyholder passes
  • Can be used for loans prior to death
  • More expensive premiums than term life insurance
  • Does build a cash value

These examples are by no means the be-all, end-all of life insurance shopping. However, they should give you an idea of where your own situation falls on the term-or-whole-life spectrum. It’s a complicated decision — which is why we’ve included some resources further down the page to help you get started on your search.

Term Life vs. Whole Life Insurance: The Nitty-Gritty

You’ve probably picked up on this already, but our first explanation of term and whole life insurance — that they differ based on the chance of an eventual payout — was the simplified version. A guaranteed or non-guaranteed payout is the defining difference, sure, but from it stem other features that distinguish term and whole life insurance.

We’ll go into a few of those details here, but you can also check out our Term Life Insurance FAQ and Whole Life Insurance FAQ for a more in-depth look at each policy type.

For starters: The fact that whole life insurance lasts a lifetime (and guarantees a payout) means that it’s significantly more expensive than term life insurance. You might pay up to 10 times more for a whole life policy than you would for a term life policy with the exact same death benefit.

Whole life insurance is much more expensive than term life insurance– in some cases, up to 10 times more per month. 

Of course, it’s worth mentioning that a portion of those hefty whole life premiums will be deposited into an interest-earning “cash value” account. The insured person can invest those funds and even borrow from them later on in life. This is often seen as a way for people to pad their estate or provide an extra safety net for retirement.

Whole life insurance also offers the opportunity to add “policy riders” (extra coverage options) that might benefit the insured during their lifetime. Popular options like an accidental death benefit rider or long term care (LTC) rider let the insured tap into their death benefit to cover costs associated with a critical illness — think medical bills, assisted living costs, and so on.

Whole life insurance adds lifetime value outside the death benefit through vehicles like a cash value account and add-on coverages that pay out during life.

Some riders are available for term life insurance, too. For instance, there are riders that guarantee policy renewal privileges, up the death benefit payout for “accidental death,” extend coverage to family members, and more. However, in general, riders tend to add more value when paired with whole life insurance. This is because whole life insurance lasts so long that people are more likely to encounter situations where they’d really need the extra coverage.

If you’re thinking that whole life insurance sounds pretty decent, you’re not alone. But here’s where the debate comes in: Many experts take a hard stance that it’s best to “buy term and invest the rest” — meaning, spend the $10 to $40 per month on a basic term life policy and put the extra $200 or more that you might have spent on whole life premiums into traditional savings or investment accounts instead. Said experts will argue that this is a much more profitable use of your hard-earned cash in the long run.

Financial planners, agents, and other experts take different stances on whether it’s better to shell out for a whole life policy or “buy term and invest the difference.”

On the other side of the fence are financial professionals who will point out that, first of all, the majority of people aren’t actually “investing the difference,” but simply spending it. This camp also argues that using a whole life cash value account is more stable and reliable over time than choosing to invest in, say, the stock market. Finally, whole life proponents point to the utility of health-related policy riders, which could ease a heavy financial burden if the insured person does develop a serious illness while covered by their whole life policy.

Just remember that all the benefits associated with whole life insurance — from a secure death benefit payment to added lifetime value — only kick in if you keep up with premium payments throughout the duration of the policy. That could mean paying hundreds of dollars per month for decades. (Whole life premiums are locked in when you buy the policy; if you pay $300 the first month, you’ll still be paying $300 in the 240th month).

Remember: Whole life insurance requires you to pay steep monthly premiums for decades. Term life insurance only lasts a set number of years, but that means you only have to pay for it as long as you truly need it.

Term Life InsuranceLess expensive than whole life insurancePays out a guaranteed amount when the policyholder passesCan be renewedEffective for temporary coverage needsDoes not build cash valueOnly good for a fixed period of timeCan still be expensiveNo access to benefits while you’re alive
Whole Life InsuranceCovers you indefinitelyBuilds cash valueCan be used for a loan while you’re aliveCan be customized with other riders for benefits while you’re aliveMore expensiveNot good for temporary insurance needsYour needs may changeMay be better investment options

So, Should I Buy Term Life Insurance and ‘Invest the Rest’?

Ultimately, the decision between term life and whole life insurance comes down to your personal finances. There are a huge number of factors to take into consideration, starting with (but not limited to):

  • The number of dependents you have and how old they are at the time you purchase your life insurance policy
  • How much you could comfortably afford in premium payments on a monthly basis
  • What kinds of debts (education, mortgages, loans, etc.) your family members might be saddled with if you were to pass away
  • Where your savings account and retirement funds currently stand (and how they’ll likely look when you actually retire)
  • Whether or not you plan to pass down a large estate that could be heavily taxed

It’s a weighty, personal decision, we know — which is why we can’t (and won’t) tell you definitively that either term life or whole life insurance is best for you. On the bright side, the fact that you’re here reading this means that you’re already on the right track. Learning about the different types of life insurance and how they’d fit into your financial plan is a great first step.

Guide to purchasing term and whole life insurance:

  • Start by analyzing your needs. Do you only need life insurance for a fixed period of time, or are you looking for coverage for the rest of your life? How many beneficiaries do you have that depend on you financially? Do you have any debt obligations that you want taken care of if you pass? What other financial assets do you have that could help your beneficiaries if you passed?
  • Compare the premium costs. Whole life insurance is going to be more expensive than term life insurance. However, the policy will build a cash value, which should factor into the cost equation. How much are you able to pay monthly? Will you be able to maintain the level of payment for the duration of the term?
  • Know that you may be able to convert. If you happen to purchase term or whole life insurance and realize that you’re better served with the other option, you may be able to switch. Some insurers give policyholders the ability to switch their policy. Do be aware that often there are time limits on when you can do this.

What’s Next?

Of course, life insurance is a highly complicated, highly personal product — and one with meaningful implications. If you’re not the type of person who can read a few online articles and then make the leap, we don’t blame you.

For a more personalized, guided experience through the life insurance shopping process, we recommend speaking with an independent insurance agent or financial advisor (the key here being “independent”). Look for an expert who isn’t affiliated with any one insurance company; that way, they can help you compare and contrast different policies without pushing you to buy before you’re ready.

The bottom line

When it comes down to comparing term life insurance vs. whole life insurance, it’s quite evident why making the right choice is so important. By taking the time to evaluate your options now, you can set up your loved ones to be taken care of properly when your time comes.

About the Authors

Jason Lee is a seasoned writer with a passion for writing about insurance, banking, and personal finance. As a Las Vegas local and area business owner for a decade, he knows the ins and outs of the city better than anyone.