Term vs. whole life insurance

Consider the cost, payout and the amount of time you want coverage.

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When you’re shopping for life insurance, you’ll come across two main types of policies: term and permanent. Term life insurance is the cheapest and most straightforward policy. It’s temporary and provides protection for a set period of time. On the other hand, permanent policies offer lifelong coverage — and whole life is one of the most popular options. Along with paying out to your beneficiaries when you die, whole life policies accumulate cash value and become a cash asset over time.

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Key facts about term life insurance

Term life insurance covers you for a specified length of time. Many insurers offer term lengths in increments of five years — like 5, 10, 15, 20, 25 or 30 years. You can choose the term and how much coverage you want to buy.

These are the key selling points of term life insurance:

  • It pays a death benefit. If you die during the term, your beneficiaries will receive a guaranteed death benefit. But if you outlive your term, your beneficiaries won’t get any money. If you still need insurance, you’ll need to buy another policy. Otherwise, you can simply let your coverage lapse.
  • It’s less expensive than whole life insurance. There are two reasons for this. Firstly, your insurer is betting you’ll still be alive at the end of the policy term. If you are, they won’t have to cough up any money. Secondly, it’s a pure life insurance product, while whole life insurance also has an investment component.
  • You can get term life insurance without a medical exam. Some insurers offer simplified issue policies, which skip the medical exam in favor of a health questionnaire. But coverage is limited to small amounts, and you’ll likely pay a higher premium.
  • Your premium typically stays the same — even if you develop a health condition. With term life insurance, your premiums are fixed, so you’ll know exactly how much you’ll pay each month. The exception to this rule is if you purchase an annual renewable term (ART) policy. Since you’re essentially buying a new policy each year, your premium might increase.

Guide to term life insurance

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Key facts about whole life insurance

Whole life insurance is a permanent policy — meaning it lasts your whole life, as long as you pay your premiums. Like term life insurance, whole life insurance offers death benefits. However, whole life insurance also includes a cash value component, which makes it more of an investment product.

This is what you need to know about whole life insurance:

  • You usually need to take a medical exam. Your insurer is committing to cover you for life, so they’ll want an accurate assessment of your health. Some insurers offer no-medical-exam permanent policies, but those policies generally come with higher premiums and lower payouts.
  • Your policy can earn cash value. When you pay your premium, a portion of it is invested to give your policy a cash value. Once you build up enough cash value, you can start to borrow against your policy to fund large expenses. You can also choose to surrender your policy and collect the cash.
  • It’s more expensive than term life insurance. Since it offers permanent protection and has a cash value component, you can expect to pay a lot more for whole life insurance. But your beneficiaries are guaranteed a payout when you die.

Guide to whole life insurance

Term vs. whole life

These are the key similarities and differences between term and whole life insurance.

Term life
Whole life
Coverage for a set period of time
Lifelong coverage
Premium stays the same
Cheaper premiums
Guaranteed death benefit
Builds cash value
Eligible to earn dividends (if you’re with a mutual life insurance company)

Which policy should I buy?

The right policy for you comes down to your life insurance needs and budget. To decide between term and whole life insurance, keep the following factors in mind.

Consider buying term life insurance if …

  • You’re not ready to lock in life insurance forever.
    With term life insurance, you can choose how long you want your coverage to last. Many people buy policies that match their longest financial obligation, such as a mortgage or student loan debt.
  • You want an affordable option right now.
    Term life insurance costs significantly less than whole life insurance.
  • 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, and you may need to be more hands-on with your policy.

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’ll need to grow the 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 inching towards retirement.
    Many experts recommend considering whole life insurance as you near the age of 50. If you’re healthy, you might still score a relatively low premium. As you get older — and potentially develop health conditions — you can expect to pay higher premiums.
  • You have a lifelong dependent, such as a child with special needs. Your policy could fund a special needs trust to help take care of your child when you’re gone.
  • You want to leave your heirs the money to pay estate taxes. If your estate is worth more than $11.4 million, the proceeds from your life insurance policy could be subject to federal estate taxes. Your beneficiaries could use the cash from your whole life policy to pay the tax bill.

Can you own both term and whole life insurance?

Yes, you can own multiple policies at once — as long as you can afford the premiums and prove to your insurer that you have a need for them. If you think your financial obligations will change, look for a term life policy that has a conversion feature. These policies allow you to upgrade to a permanent policy within a certain time frame, usually within the first five years of the policy or before your 60th, 65th or 70th birthday.

Which policy is more cost-effective?

Term life insurance tends to cost four to six times as much as whole life insurance. It’s cheaper because you pay for the coverage you want, and it’s designed to expire when you don’t need it anymore. While life insurance rates are individualized, let’s talk averages. According to our research, a healthy, nonsmoking 30-year-old might be charged $13.33 a month for a $250,000, 20-year policy. In comparison, that same person might pay $205 a month for a whole life policy.

*Based on sample rates from Policygenius, August 2019.

Compare term and whole life insurance companies

Name Product Issue Ages Coverage Range Medical Exam Required State Availability
LadderLife™ Life Insurance
20 - 60 years old
$100,000 to $8,000,000
Not available in New York
Term life insurance with no policy fees and the freedom to cancel anytime. Simple application process that can get you approved for coverage instantly.
21 - 54 years old
$50,000 to $1,000,000
Not available in New York
Affordable 2-, 10- and 20-year term life insurance policies. Instant quotes and no medical exams.
18 - 80 years old
$50,000 to $25,000,000
Depends on provider and policy
All 50 states and D.C.
Get a quote within minutes from more than a dozen insurers.
18 - 100 years old
$50,000 to $3,000,000
This life insurance broker combines technology and the human touch to match you with a policy tailored to your needs.
20 - 85 years old
$100,000 to $2,000,000
Depends on policy.
Products and product features may not be available in all states.
This well-established life insurance provider could offer you $250,000 worth of coverage for as low as $14 per month.

Compare up to 4 providers

Updated January 24th, 2020
Name Product Issue Age Financial Strength Pays Dividends
Quotacy: Whole life insurance
18 to 80
Varies by provider
Varies by provider
Get a quote within minutes from more than a dozen insurers.
18 to 85
Varies by provider
Varies by provider
Compare affordable quotes from 12+ A-rated life insurance companies side-by-side.
JRC Life Insurance
25 to 80
Varies based on provider
Varies based on provider
Quickly get a quote for coverage with this marketplace, which compares term & whole life insurance policies from 45+ carriers.
Fidelity life insurance
50 to 85
A.M. Best: A-
Get a term or whole life insurance quote from Fidelity Life - starting as low as $15/day.
Leap Life
18 to 75
Varies by provider
Varies by provider
Apply for a simple instant-decision policy free of charge. Compare quotes from multiple A-rated carriers.
Navy Mutual
18 to 80
Fitch Ratings Agency: A+
Affordable life insurance for active duty, reserve, and retired United States military service members. Get a free quote online.
Globe Life
Simple application process with no medical exam and no waiting period. Pay $1 for the first month of coverage.

Compare up to 4 providers

Bottom line

Term life insurance is a solid choice for most people, and especially for those whose financial obligations won’t last forever. If you can afford the higher premiums and want to treat your policy as a cash asset, you might want to look into whole life insurance. Either way, compare life insurance companies to find the best possible policy and rate.

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