Term Life vs. Whole Life Insurance: Which Is the Best Fit for You?

The main difference between whole life insurance and term life insurance lies in the duration and cash value component. Term life offers coverage for a specific period with no cash value, while whole life provides lifelong coverage with a cash value component. Uncover other key differences, cost factors and how each might align with your needs.

Eric Estevez, Independent Licensed Life Insurance Agent
  • Written by
    Eric Estevez

    Eric Estevez

    Owner of HLC Insurance Broker, LLC

    Eric Estevez is a duly licensed independent insurance broker and a former financial institution auditor with more than a decade of professional experience. He has specialized in federal, state and local compliance for both large and small businesses.

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  • Edited By
    Savannah Pittle
    Savannah Pittle, senior financial editor for RetireGuide

    Savannah Pittle

    Senior Financial Editor

    Savannah Pittle is a professional writer and content editor with over 16 years of professional experience across multiple industries. She has ghostwritten for entrepreneurs and industry leaders and been published in mediums such as The Huffington Post, Southern Living and Interior Appeal Magazine.

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  • Financially Reviewed By
    Daniel J. Adams, MBA, CFP®, CLU®
    Daniel J. Adams, MBA, CFP®, CLU®, Certified Financial Planner™ Professional and Independent Insurance Agent

    Daniel J. Adams, MBA, CFP®, CLU®

    Certified Financial Planner™ Professional and Independent Insurance Agent

    Daniel J. Adams, the founder of CEG Life Insurance Services, boasts extensive expertise in life and health insurance products. His role as a Certified Financial Planner™ professional and independent insurance agent allows him to aid clients in establishing a solid financial future. Moreover, he takes on the responsibility of training new agents and offering guidance to other financial professionals.

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  • Published: October 4, 2023
  • Updated: October 7, 2023
  • 7 min read time
  • This page features 10 Cited Research Articles
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How to Cite RetireGuide.com's Article

APA Estevez, E. (2023, October 7). Term Life vs. Whole Life Insurance: Which Is the Best Fit for You? RetireGuide.com. Retrieved April 16, 2024, from https://www.retireguide.com/life-insurance/term-vs-whole/

MLA Estevez, Eric. "Term Life vs. Whole Life Insurance: Which Is the Best Fit for You?" RetireGuide.com, 7 Oct 2023, https://www.retireguide.com/life-insurance/term-vs-whole/.

Chicago Estevez, Eric. "Term Life vs. Whole Life Insurance: Which Is the Best Fit for You?" RetireGuide.com. Last modified October 7, 2023. https://www.retireguide.com/life-insurance/term-vs-whole/.

Key Takeaways
  • Term life insurance covers a set period, while whole life insurance covers your entire lifespan.
  • Whole life costs more than term life over the length of the term yet both may be hard to qualify for if you have pre-existing medical conditions.
  • Whole life accumulates cash value. If the policy is no longer needed, the policyholder can surrender or sell it.
  • Term life insurance is typically best for short-term needs, while whole life insurance is the more suitable long-term solution.
  • Depending on the details of your policy, policyholders may be able to convert them into whole life policies if their insurance needs change.

Understanding Term Life vs. Whole Life

The death benefit is the single similarity between term life insurance and whole life insurance. They are very different life insurance products, each with distinguishing features and unique characteristics.

Whole Life Insurance

Whole life insurance covers you for the entire span of your life. For this reason, these policies are sometimes called permanent life insurance. If you die with an active whole life policy in place, your beneficiaries will receive your specified death benefit. You must maintain your premiums to keep your policy active.

A defining characteristic of whole life insurance is its cash component. Part of your premium payments get added to the policy’s cash accumulation value. If you decide you no longer need your life insurance, you can surrender your whole life policy and receive its cash accumulation value (minus any applicable surrender fees). Some policies also generate more value through dividends.

You may also be able to sell an unneeded policy for more than the accumulated cash value and the total premiums paid. The cash value makes whole life insurance more expensive, at least to start, than term life.

Term Life Insurance

Term life insurance provides coverage for a specific period, usually ranging from 10 to 30 years.

Unlike whole life insurance, term life only pays a death benefit if you die during the active period. If you pass away after the policy term ends, the insurer won’t pay the death benefit.

Because of its smaller scope, and lower likelihood of paying a claim, term life insurance is less expensive than whole life coverage. It’s often a suitable choice for any individual or couple who want to ensure financial security for their loved ones for a specific time period.

There is no one-size-fits-all type of life insurance. It is important to assess your family’s needs, goals and budget, and then compare the different policy options, such as term life and whole life, to determine the right policy for you.
Daniel J. Adams, MBA, CFP®, CLU®, Certified Financial Planner™ Professional and Independent Insurance Agent
Daniel J. Adams MBA, CFP®, CLU®, Certified Financial Planner™ Professional and Independent Insurance Agent

How Are Term and Whole Life Different?

Term life insurance and whole life insurance are distinct products with their own features and applications. Whole and term life insurance differ in a few key areas.

Policy FeaturesTerm LifeWhole Life
Policy LengthLasts a set number of yearsLasts your entire life
PremiumsUsually stay the same across the entire policy periodUsually stay the same across your lifetime
Cash ValueDoes not applyBuilds over time based on your premiums
CostLess than whole life insuranceMore than term life insurance
DividendsDoes not provide dividendsMay provide dividends
Death BenefitPaid in full if death occurs within the set time frame of the contractRemains constant throughout the life of the policy

Cost Comparison

The cost of life insurance varies depending on factors like your sex, age, health status, policy amount, type and term length.

Rates for Women
Age Policy Amount20-Year Term Life
25$250,000$14.10
35$250,000$16.32
45$250,000$28.19
55$250,000$59.69
Rates for Men
Age Policy Amount20-Year Term Life
25$250,000$17.03
35$250,000$18.58
45$250,000$34.95
55$250,000$82.46
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Key Factors To Consider

A few questions are helpful to consider when you’re making the choice between buying whole life insurance and term life insurance.

When comparing quotes, make sure to use an insurance broker who is contracted with a variety of life insurance companies. This will give you peace of mind that you are getting the best policy and rate available on the market. For comparative purposes, consider calling your local captive agencies as well. This will provide you with a comprehensive view of the life insurance products you are considering.
Eric Estevez, Independent Licensed Life Insurance Agent
Eric Estevez Licensed Independent Insurance Broker
Questions To Help You Choose Between Whole and Term Life Insurance
  • What are my specific financial goals and needs? If you want to safeguard your family’s short-term financial stability, term life insurance will suffice. If you want to build wealth for your heirs, whole life insurance is the better option.
  • How long do I need the coverage to last? If you won't need coverage for more than a few years, term life insurance is the cheapest and best option for you.
  • Do I have dependents or beneficiaries who rely on my income? If so, choose a policy that covers the period in which your loved ones expect to remain dependent on you. If they will always be dependent on you, whole life insurance is better.
  • What is my budget and affordability for insurance premiums? If you can only afford modest premiums, term life insurance is better.
  • Do I have any pre-existing health conditions that may affect my eligibility or premiums? If you have any medical conditions that may shorten your life, premiums for term life insurance will be less costly.
  • Am I looking for an insurance policy that accumulates cash value? If so, choose a whole life policy.
  • What are my estate planning and legacy goals? If leaving something behind for your heirs is important to you, a whole life policy ensures you’ll can do that, regardless of how long you live.
  • How important is flexibility in adjusting coverage or premium payments? If you think your insurance needs might change, it’s better to start with term life insurance and see if converting the policy to a whole life policy later makes sense.
  • Do I need insurance primarily for income replacement during your working years or for other purposes? If you want your policy to replace your income, term life insurance should cover your remaining earning years. If you’re interested in coverage for other reasons, a whole life policy will provide more extensive coverage.
  • How does each type of insurance align with my retirement planning strategy? If you need to minimize your expenses in retirement, term life covers you without locking you into expensive premiums. If you want to leave a sizable estate behind, whole life is a better choice.
  • Which type of insurance is more cost-effective in the long run? It depends on your needs. If you only need coverage for a set period, term life is the more affordable solution. However, premiums paid on a whole life policy accumulate a cash value that will allow you to recoup the funds you’ve spent if you decide that you no longer need the policy.

Alternatives to Term and Whole Life Insurance

If neither term nor whole life insurance meets your needs, consider other types of life insurance products:

Alternative Insurance Products
Universal Life Insurance
Has premiums you can raise or lower over time.
Variable Life Insurance
Invests your premiums for potential higher growth.
Indexed Universal Life Insurance
Includes a cash value component based on stock market performance.
Return of Premium Term Life Insurance
Returns all premiums paid at the end of the term, if a claim is never made
Survivorship Life Insurance
Pays out after you and your partner pass away.
Accidental Death and Dismemberment Insurance
Protects you from income loss because of an accident.
Self Insurance
Setting aside money for your heirs after you die.

Weigh your needs to determine which option offers the features you’re looking for.

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FAQs About Term vs. Whole Life Insurance

Can you convert a term life insurance policy into a whole life insurance policy?
Consult with your agent, as to whether you have a convertible term policy. If so, yes you can convert from term to a whole life policy. There is typically a time frame within the policy where this conversion is possible.
How does your health and medical history affect your ability to obtain whole life insurance or term life insurance?
Your health and medical history determine your life expectancy, which is a key factor when insurers prepare a quote for premium pricing. If the insurance company's underwriters feel your medical status and history make you more likely to die within the policy period, they may deny you coverage or offer it at a higher price.
Are there any tax advantages associated with whole life insurance or term life insurance?
Yes, they both offer tax advantages. The death benefit from any life insurance policy is typically not taxable. The cash value of a whole life policy is commonly non-taxable while it remains in the policy or is taken out via policy loans, though there are some instances where taxability can become an issue.
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Last Modified: October 7, 2023

10 Cited Research Articles

  1. Johnson, H. (2023, March 1). How Does Universal Life Insurance Work? CNN Underscored. Retrieved from https://www.cnn.com/cnn-underscored/money/universal-life-insurance
  2. Danis, L. & Gollub, H. (2023, February 27). What Does It Mean To Self-Insure — And Should I Do It? USA Today. Retrieved from https://www.usatoday.com/money/blueprint/insurance/self-insurance/
  3. International Risk Management Institute. (2023). Accidental Death and Dismemberment (AD&D). Retrieved from https://www.irmi.com/term/insurance-definitions/accidental-death-and-dismemberment
  4. International Risk Management Institute. (2023). Joint Life and Survivor, or Second To Die, Life Insurance. Retrieved from https://www.irmi.com/term/insurance-definitions/joint-life-and-survivor-or-second-to-die-life-insurance
  5. Minnesota Department of Commerce – Insurance. (2023). Term vs. Permanent Life Insurance. Retrieved from https://mn.gov/commerce/insurance/other/life-insurance/term-vs-permanent/
  6. Journal of Financial Service Professionals. (2020, November). Comparing Term Life Insurance Policies. Retrieved from http://www.managinglifeinsurance.com/articles/Journal%20of%20FSP%20-%20Comparing%20Term%20Life%20Insurance%20Policies.pdf
  7. Journal of Financial Planning. (2019, February). Investigating the Role of Whole Life Insurance in a Lifetime Financial Plan. Retrieved from https://www.financialplanningassociation.org/article/journal/FEB19-investigating-role-whole-life-insurance-lifetime-financial-plan
  8. U.S. Securities and Exchange Commission. (2018, October 30). Investor Bulletin: Variable Life Insurance. Retrieved from https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_varlifeinsurance
  9. Tsendsuren, S. et al. (2018, September 27). The Effects of Health Status on Life Insurance Holdings in 16 European Countries. Retrieved from https://www.mdpi.com/2071-1050/10/10/3454
  10. Internal Revenue Service. (n.d.). Life Insurance & Disability Insurance Proceeds. Retrieved from https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insurance-proceeds