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

Whole life insurance offers lifelong protection and a cash benefit. But term life is cheaper and more flexible. Let’s compare them side by side.

A.M. Steinbach
Written byA.M. Steinbach
A.M. Steinbach
A.M. SteinbachInsurance Writer
  • Full-time writer for 5+ years

  • Two-time Emmy Award nominee

A Harvard graduate, Mark has worked as a freelance personal finance and tech writer. He’s also written for Saturday Night Live.

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Evelyn Pimplaskar
Evelyn PimplaskarEditor-in-Chief, Director of Content
  • 10+ years in insurance and personal finance content

  • 30+ years in media, PR, and content creation

Evelyn leads Insurify’s content team. She’s passionate about creating empowering content to help people transform their financial lives and make sound insurance-buying decisions.

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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:

Key Difference
Term Life
Whole Life
Term lengthTemporary (1–30 years)Lifelong
CostLower premiumsHigher premiums
Cash valueDoesn’t build cash valueBuilds cash value
ComplexitySimple and straightforwardMore complicated
PurposeA more flexible, temporary life insurance policyFixed death benefit across a longer timeline
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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.

Who Term Life is Good for

Term life insurance is best for young policyholders on a budget. For example, young parents with a 3-year-old might want a 15-year term life insurance policy. This term policy would provide financial protection until the child is a legal adult. Or they might consider a 20-year term to provide financial protection through the child’s college years.

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.

Who Whole Life is Good for

Whole life insurance can make sense for people who are focused on estate planning or supplementing their income when they retire. The death benefit can be used toward an inheritance. Whole life insurance policies also make sense for higher earners who can handle the higher up-front costs.

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.

Age and Gender
20-Year Term Monthly Premium
30-Year Term Monthly Premium
Whole Life Monthly Premium
25-year-old woman$15.01$22.47$113.17
25-year-old man$18.35$27.59$130.42
35-year-old woman$17.20$28.74$152.14
35-year-old man$20.16$34.24$180.99
45-year-old woman$35.93$59.28$219.00
45-year-old man$45.40$76.61$265.08
55-year-old woman$82.70$173.82$328.23
55-year-old man$112.55$229.13$389.79
Source: Insurify partner SelectQuote provided these averages based on 20-year and 30-year term policies and whole life policies from one or more of the companies SelectQuote represents. Rates are for men and women in excellent health. Premiums may vary depending on individual health, issuing company, and other factors.

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

Pros
  • Lower premiums

  • More simple and straightforward

  • Easier to cancel

Cons
  • Only temporary coverage

  • Premiums may increase at renewal

  • No cash value growth

Whole life insurance

Pros
  • Lifelong protection

  • Guaranteed death benefit

  • Grows cash value

Cons
  • Higher premiums

  • Fixed costs and benefits

  • Harder to cancel

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.

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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

If you have people who depend on your income, you may need life insurance to ensure they’ll be OK financially if you pass away. It’s important to know which type of life insurance — term life versus whole life — best suits your needs. The following questions and answers might help provide some valuable insight.

  • Which is better for new parents, term or whole life insurance?

    Your choice depends on your specific financial situation and goals. But a term policy is a solid choice for parents who want a low-cost option that protects their children financially while they’re dependents.

  • Can you take money out of your life insurance policy?

    Under certain circumstances, you can withdraw the savings you’ve accumulated in a whole life insurance policy. You can also borrow against these savings or put the savings toward premium payments.

  • What happens to term life at the end of the policy term?

    Once your term policy ends, you may have the option to renew it. Because you’re older by the end of your insurance term, the premiums for your renewed policy may be higher. If you don’t renew your policy at the end of the term, you won’t be able to get the death benefit or any of your premiums back.

  • When should you switch from term to whole life?

    Generally, switching to whole life is sensible once your children are in college and no longer financially dependent. But keep in mind that this choice depends on your individual financial goals and ongoing expenses. Older people with no dependents and who have solid retirement savings may not need life insurance at all.

  • At what age should you stop term life?

    There’s no one strict guideline for stopping term life insurance. It depends on your financial situation. You might decide to switch to whole life once you’ve maxed out retirement accounts and are interested in the tax advantages that come with whole life insurance.

Sources

  1. Insurance Information Institute (Triple-I). "What are the principal types of life insurance?."
  2. SelectQuote. "What is permanent life insurance?."
  3. Triple-I. "What are the different types of permanent life insurance policies?."
  4. FINRA. "Investment Products: Insurance."
A.M. Steinbach
A.M. SteinbachInsurance Writer

A.M. is a Brooklyn-based writer, editor, and content marketing strategist who's worked with major brands in insurance, tech, finance, and healthcare. He also contributes to The Average Joe, a personal finance newsletter that reaches over 250,000 daily readers. Since 2019, he's written for Insurify, breaking down a diverse range of insurance topics into crisp, readable prose.

A.M. has been a contributor at Insurify since December 2022.

Evelyn Pimplaskar
Edited byEvelyn PimplaskarEditor-in-Chief, Director of Content
Evelyn Pimplaskar
Evelyn PimplaskarEditor-in-Chief, Director of Content
  • 10+ years in insurance and personal finance content

  • 30+ years in media, PR, and content creation

Evelyn leads Insurify’s content team. She’s passionate about creating empowering content to help people transform their financial lives and make sound insurance-buying decisions.

Featured in

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