Consider the cost, pay out and the amount of time you want coverage.
Term life insurance covers you for a certain amount of time and generally costs less than whole life insurance. However, whole life lasts for your entire life, and as you accumulate cash value, you can use that money to pay your premiums or boost your beneficiary’s payout.
Term vs. whole life
|Term life insurance||Whole life insurance|
|Usually easier to buy||✔|
|Choose how long your policy lasts||✔|
|Lasts for life||✔|
|Premium is typically fixed||✔|
|Includes cash value||✔|
|May be able to get a policy with no health exam||✔||✔|
Compare quotes from 16 life insurance companies side by side.
- Compare multiple providers
- Calculate how much coverage you need
- Get a quote in 2 minutes
Why we like: Policygenius
Compare quotes from 16 life insurance companies side by side.
- Get the coverage amount and term that's right for you.
- Choose between term or whole life insurance.
- Easy online application process.
What is term life insurance?
Term life insurance covers you for a specified period of time, typically with the option of renewing after that term.
Average terms come in increments of five — for instance, 5, 10, 15, 20, 25 or 30 years. Though you’ll find the rare company offering tailored terms, you likely won’t be able to sign up for a 12-year policy.
Here’s what you should know about term life insurance
- It offers death benefits only. You’ll pay your premiums and are guaranteed a payout if your die before your term is up. If you outlive your term, you can renew or let it lapse.
- It’s usually less expensive than whole life insurance. Your insurer is betting you’ll still be alive at the end of the policy term. If that’s the case, it won’t have to pay up. Your insurer saves money and charges you less.
- You could renew your coverage after your term ends. Check with your provider to see if this is possible. If you renew your coverage, you’ll probably pay a higher premium.
- You can get term life insurance without a health exam. However, your premiums will probably be higher because your insurer has no information about your health.
- Your premium may change depending on the type of insurance you buy. There are three types of term life insurance: level term, decreasing term, and annual renewable term insurance.
Your death benefit will … Cost of your premium Level term insurance Stay the same throughout the term. Your premium stays the same throughout the term. Decreasing term insurance Decreases over the term. Premium usually stays the same throughout the term. Annual renewable term insurance Stay the same throughout the term. Your premium increases every year.
What is whole life insurance?
Whole life insurance is a type of permanent life insurance — meaning it gives you lifelong coverage. Like term life insurance, whole life insurance offers death benefits. However, whole life insurance includes an investment account — the cash value component.
What you should know about whole life insurance
- You usually need to have a health exam.
Since your insurer will cover you for life, it wants an accurate assessment of your health. Though some insurers offer no-medical-exam policies. Generally those policies come with higher premiums and lower payouts.
- You can earn cash value. As you pay your premium, a portion of it grows to become your cash value, available to you to withdraw, tax-free.
- At the beginning, it’ll be more expensive than term life insurance.
In the long run, however, your beneficiaries are guaranteed a payout.
Alternatives to whole life insurance
There are several types of permanent life insurance, including:
- Variable life insurance
- Universal life insurance
- Variable-universal life insurance
- Survivorship life insurance
Compare term and whole life insurance providers
Which type of insurance should I buy?
Consider these factors when you’re trying to decide to buy term or whole life insurance:
Consider buying term life insurance if …
- You’re not ready to lock in your life insurance forever.
With term life insurance, you can choose how long you want it to last.
- You want an affordable option right now.
Term life insurance generally costs less than whole life insurance — at least at the beginning. You might be surprised by the cost, which could be as little as $30 or $40 a month.
- You want coverage only for the years you’re paying the bills.
You may not need a large death benefit after your kids are moved out or you’ve paid off your mortgage. Getting term life insurance means you can reevaluate your policy closer to its expiration date.
- You want a straightforward life insurance policy.
Term life insurance is relatively easy to understand. Whole life insurance can be more complicated, as you’ll want to evaluate it against other types of permanent life insurance.
Consider buying whole life insurance if …
- You’re young and healthy, and your family has a history of serious diseases.
It may be a good idea to lock in your premium while you have no health complications. With a serious illness, your premium will increase significantly.
- You don’t think you have the discipline to invest on your own.
A term life policy might save you money, which you can put in your own investments. However, you must grow your funds yourself or hire someone to do it for you. You’ll pay higher average premiums for a whole life policy, but your insurer will take care of the investing.
- You’re getting close to the age of retirement.
Many experts recommend considering whole life insurance as you near the age of 50. You may still be healthy and receive lower premiums. As you get older — and potentially develop health conditions — you may pay higher premiums.
Can you own both Term and Whole life insurance?
It’s possible to buy both term and whole life insurance policies simultaneously as you reevaluate your lifestyle and your needs change and you need more coverage. Look out for term policies that give you the option to convert to a whole life insurance policy later if you’re interested in investing the accumulated value.
In the end, there’s no limit to how many life insurance policies you have, as long as you’re able to afford the premiums.
Which policy is more cost effective?
Ultimately, term life insurance is cheaper because you pay for what you need, and it’s set up to end when you don’t need it anymore. A 30-year-old healthy male nonsmoker would pay about $23 a month for a $500,000 policy would cost about $26 a month for a 25-year policy, and about $205 a month for a whole life policy.
Term life insurance can be helpful if you have a solid plan for how you’ll cover your obligations when your policy expires. If you think your premiums may increase significantly in the future, it may be worth spending more on whole life insurance. Find a policy that works best for your future by comparing providers.