Term life insurance vs. whole life insurance: an overview
If you’re shopping for life insurance, you’re most likely trying to decide between two main policy options: term life and whole life. Term life insurance is simple, easy to understand, and affordable, but doesn’t last for life. Whole life insurance, on the other hand, never expires, but is more expensive and complex than term life.
Term life insurance is the most convenient policy option for people who’re simply looking for a way to provide a financial safety net to their loved ones in case they die. But that doesn’t mean term life is right for everyone. Whole life insurance is a useful option for people with lifelong dependents or more complex financial planning needs.
Which of these two policy options is right for you will ultimately depend on your budget, coverage, and financial needs.
Comparing life insurance coverage options at a glance
Features | Term life insurance | Whole life insurance |
Provides lifelong coverage | No | Yes |
Limited length of coverage | Yes (up to 40 years) | No |
Cost* ($500,000 coverage amount) | $28/month for a 20-year term policy | $540/month for a whole life policy |
Guaranteed death benefit | Yes | Yes |
Guaranteed cash value | No | Yes |
Can take loan against cash value | No | Yes |
Premiums stay fixed | Yes, in most cases | Not always |
Pays annual dividends | No | Yes, in some types of policies |
Can cover funeral costs at any time | No, policy may expire before you die | Yes |
Policy will lapse if you stop paying premiums | Yes | Not always, depends on when you stop paying |
*Methodology: Average monthly estimated term life insurance rate is for male and female non-smokers with a Preferred health rating buying a 20-year, $500,000 policy. Term life insurance averages are based on a composite of policies offered by Policygenius from Corebridge Financial, Banner Life, Brighthouse Financial, Foresters Financial, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. Life insurance rates may vary by insurer, term, coverage amount, health class, and state. Average monthly estimated whole life insurance rate is calculated for non-smokers in a Preferred Plus and Standard health classification, obtaining a whole life insurance policy payable within 99 years from MassMutual. Individual rates will vary as specific circumstances will affect each customer's rate. Not all policies are available in all states. Rate illustration valid as of 04/01/2023.
What is term life insurance?
Term is a type of life insurance that provides financial protection for your family over a fixed period of time, typically lasting 10 years to 30 years. The goal of many term life insurance policies is to provide coverage until retirement, at which point you likely have fewer financial responsibilities and are able to self-insure. If you die during your term, your beneficiary will receive the death benefit — typically a lump sum of money — tax-free.
What are the benefits of term life insurance?
Term life insurance covers almost any type of death caused by illness or an accident and is accessible to almost anyone, even if you have a pre-existing condition or you’re on a budget.
Term is more affordable than other types of life insurance and can provide a financial safety net to your loved ones without complicated tax, premium or payout complications.
What are the drawbacks of term life insurance?
The main drawback of term life insurance is that it has an expiration date. If you still need life insurance by the time your term coverage expires, you’ll have to buy a new policy.
Term also doesn’t come with a cash value component that other types of policies have. If you’re looking for alternative investment options, or you have dependents who will need long-term care, a term life policy is probably not the best fit for you.
Pros and cons of term life insurance
Pros:
Affordable: Term is cheaper than other options, so you can get coverage at a manageable price. A healthy 35-year-old, for example, can pay as little as $28 per month for a term life policy with a $500,000 payout and a duration of 20 years. By comparison, a whole life policy with the same payout would cost the same person $540 per month.
Straightforward: Term life policies come with few tax implications and restrictions.
Coverage only when you need it: Term life insurance provides financial protection during your productive years, when you have multiple financial obligations, like paying a mortgage or putting your children through college.
Cons:
Common types of term life insurance policies
49% of the sandwich generation don't have life insurance
A recent Policygenius survey found that 49% of the sandwich generation (people with a parent age 65 or older who also are raising children or supporting adult children) doesn’t have life insurance to help financially support their loved ones after they die. If that’s your case, a term life insurance policy is an easy and affordable way to provide your family with a financial safety net in your absence.
Read more about term life insurance
What is whole life insurance?
Whole life insurance is a type of permanent life insurance that provides coverage for your entire life. Like all life insurance products, whole life pays a tax-free death benefit to your beneficiaries upon your death. But it also has a cash value that earns interest at a fixed rate over time.
What are the benefits of whole life insurance?
Whole life insurance doesn’t expire so your beneficiaries will receive the death benefit payout regardless of when you die, as long as you’ve paid your premiums to keep your policy active.
The cash value that whole life policies have builds interest over time — and offers a guaranteed rate of return that grows at a fixed rate. Unlike your death benefit, you’re able to access your cash value while you’re still alive.
What are the drawbacks of whole life insurance?
Whole life insurance policies are five to 15 times more expensive than term life policies. If you take out a whole life policy and then find you can’t afford to keep it, you risk leaving your family without protection.
As an investment vehicle, one disadvantage of whole life is that other investment options offer higher rates of return.
Pros and cons of whole life insurance
Pros:
Cons:
Cost: Whole life insurance is five to 15 times more expensive than term. A healthy 35-year-old would pay $540 per month for a whole life insurance policy with a $500,000 payout. By comparison, a 20-year term life policy with the same payout would cost the same person $28 per month.
Investment returns: Whole life insurance offers lower returns than other investment options.
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Term life vs. whole life insurance: Coverage comparison
The length of your coverage, the premium costs, and the cash value component are the main differentiating factors between term life and whole life insurance policies. Here’s what to consider when shopping for the right policy for you.
Policy duration
Term life insurance policies last only for a set period of time — usually, between 10 years and 30 years — while whole life policies never expire.
If you’re only seeking temporary coverage while you face important financial obligations like paying down a mortgage or sending your children to college, term life can be a good fit for you.
If you have long-term financial obligations or dependents who will need lifelong support, a whole life policy can provide the permanent coverage protection you need. If you’re already maximizing your contributions to tax-advantaged accounts like a Roth IRA or a 401(k) and are seeking another investment option, whole life might also work for you.
Premiums
Life insurance premiums, regardless of policy type, can usually be paid in monthly or annual installments. Consider your budget and other financial considerations and pick the payment option that best suits your needs.
When it comes to term life, level term life policies where the premium — and the death benefit — remain the same over the life of the policy are the most common. Other less common term policies — called return-of-premium life insurance — give you the option to get your premiums refunded if you outlive your coverage, but they’re usually more expensive.
As for whole life, some policies — called single premium whole life insurance — allow you to fund the policy by one initial premium payment in a lump sum. This option allows policyholders who can afford it the possibility to make just one payment and have coverage for life.
Payouts
Both term and whole policies offer similar death benefit payouts. Minimum coverage amounts are typically around $100,000 for traditional term life or whole life, and can go up as high as $2 million or more.
Cash value
Term life insurance does not have a cash value. By contrast, whole life insurance has a cash value that earns interest over time and is separate from the death benefit. This is one of the main reasons why whole life insurance is several times more expensive than term life.
Canceling a policy
You can cancel your life insurance policy at any time, but canceling a term policy is usually easier and has fewer potential implications than canceling a whole life policy.
The easiest way to cancel a term life insurance policy is to stop paying your premiums. You can also contact your insurance provider to request that your policy be canceled. No matter what option you choose, there’s no penalty or fee for ending a term life insurance policy.
Canceling a whole life insurance policy takes more than just stopping payments. Your options will depend on how long you’ve owned the policy and your insurance company’s rules, but some popular choices are to either surrender your policy for the cash value, or to opt for a lower death benefit that’s already covered by your paid premiums.
Risks
The main risks associated with both term life and whole life insurance have to do with their duration and cost.
Term life is affordable but lasts only for a set period of time. If your policy expires and you still need coverage, you risk having to pay higher premiums for a new policy or for having to convert it into a permanent policy.
Whole life policies provide coverage for life, but because they’re several times more expensive than term, they’re more difficult to maintain for the whole duration of the policy. You may risk losing coverage or paying surrender fees if you can’t afford your monthly premiums and let your policy lapse.
Term vs. whole life insurance: Cost comparison
Whole life is about five to 15 times more expensive than term life. A non-smoking 35-year-old will pay $28 per month for a 20-year term life policy with a $500,000 death benefit payout, or $540 per month for a whole life policy with the same payout.
The average monthly sample rates below will show you how other term life rates and whole life rates compare. Sample rates are for non-smokers who fall into the preferred health class — usually reserved for people with one or two minor health conditions or within the insurance company's preferred range for height-to-weight ratio — seeking a life insurance policy with a duration of 20 years, 30 years, or whole life.
Term life vs. whole life rates for a $500,000 policy
Age | Sex | $500,000 20-year term life insurance policy | $500,000 30-year term life insurance policy | $500,000 whole life insurance policy |
25 | Female | $20.89 | $31.00 | $351.00 |
| Male | $26.92 | $39.54 | $403.00 |
35 | Female | $25.43 | $38.96 | $489.50 |
| Male | $30.15 | $46.42 | $591.50 |
45 | Female | $47.62 | $79.87 | $744.50 |
| Male | $60.54 | $154.61 | $1,361.50 |
55 | Female | $108.31 | $211.44 | $1,219.50 |
| Male | $150.12 | $307.26 | $1,462.50 |
Methodology: Average monthly term life insurance rates are for male and female non-smokers with a Preferred health classification buying a 20-year or 30-year $500,000 term life insurance policy. Term life insurance averages are based on a composite of policies offered through Policygenius from Corebridge Financial, Banner Life, Brighthouse Financial, Foresters Financial, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. Life insurance rates may vary by insurer, term, coverage amount, health class, and state. Average monthly whole life insurance rates are calculated for non-smokers in averaged Preferred Plus and Standard health classifications, obtaining a whole life insurance policy payable within 99 years from MassMutual. Individual rates will vary as specific circumstances will affect each customer's rate. Not all policies are available in all states. Rate illustration valid as of 04/01/2023.
What to consider before buying term or whole life insurance
What do you need life insurance coverage for, and for how long are two of the main questions you should consider when choosing between term life and whole life policies. Other relevant considerations that will impact the type, length, and amount of the life insurance policy you may need include:
Your age
Your health
You family's financial needs
Any pre-existing conditions and other long-term health expenses
Financial obligations, like a mortgage
Retirement plans
Children's current and future costs, including college tuition
Funeral expenses
Estate planning taxes
Existing wills and trusts
Special beneficiaries, like relatives who need long-term care
Other existing life insurance policies
Term vs. whole: Other life insurance options
Term life and whole life are two of the most popular types of life insurance policies because they meet the most common coverage needs of most people. But if you have other life insurance plans, you might want to consider different options.
The following types of policies can be an alternative to term life, whole life, or both. Working with an independent broker on your life insurance application is the best way to find the right coverage for you at the right price.
Guaranteed universal life insurance is a type of permanent life insurance that comes with fixed premiums, minimal cash value, and a guaranteed death benefit.
Indexed universal life insurance (IUL) comes with a cash value that earns interest and lets you adjust your death benefit or use your cash value to pay your premiums — similar to other universal life insurance options. The interest rate is based on an index chosen by the policyholder.
Variable life insurance is a type of permanent coverage that allows you to invest the money from your cash value in various funds offered by the insurance company, including mutual funds.
Variable universal life insurance (VUL) is a type of permanent coverage that comes with flexible premiums, an adjustable death benefit, and multiple ways to invest your cash value.
Burial insurance, also known as final expense insurance, is designed to pay a small death benefit to your family to help cover end-of-life expenses.
Joint life insurance is a policy that covers two people. Most commonly, the joint policyholders are married or domestic partners, but they can also be business partners. In most cases, it’s better for each individual to have their own personal policy.
→ Learn more about the difference between term vs. permanent life insurance
Term or whole life insurance: Which one is better?
If you’re looking for a simple and affordable way to provide your loved ones with a financial safety net if you die, a term life policy may be a good option for you. But if you have long-term financial obligations, or you’re already maximizing contributions to your 401(k) or Roth IRA and looking to diversify investments, a whole life policy may suit your needs better.
The best way to find the right type of policy for you is to work with an independent broker. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.
Frequently asked questions
What’s the difference between term life and whole life?
Term life offers affordable coverage for a set period of time, usually 10 years to 30 years. Whole life is a lot costlier because it lasts your entire life and has an investment-like component.
What happens to term life insurance at the end of the term?
Term life insurance policies expire at the end of the term. If you don’t need to keep coverage, you can let your policy expire. If you still need coverage, however, you can convert it into a permanent policy, renew your policy at a higher premium, or apply for a new policy.
Can you cash out a term life insurance policy?
No, you can’t cash out a term life insurance policy because this kind of policy doesn’t have a cash value.
Can you cash out a whole life insurance policy?
Yes, you can cash out a whole life insurance policy. Every whole life policy has a cash surrender value, which is the cash value amount minus fees and penalties. Penalties for cashing out apply during the surrender period, which can last a decade or more. Interest earnings are also taxed as income if you cash out.
Can you convert a term life insurance policy to whole life?
Yes, many term life insurance policies come with the option to convert to whole life — or another permanent life insurance product — before the end of your term.
