Term vs. whole life insurance

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

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Term life insurance is the cheapest and most straightforward policy, and provides coverage for a set period of time. Whole life insurance is a permanent policy that offers lifelong protection. It also accumulates cash value and becomes a cash asset over time.

Term vs. whole life

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)
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What is term life insurance?

Term life insurance covers you for a specified period 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.

The key things to know about 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 usually less expensive than whole life insurance. Your insurer is betting you’ll still be alive at the end of the policy term. If you are, your insurer won’t have to cough up any money.
  • 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 might 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.

    The differences between term life policies

    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.

Guide to term life insurance

What is whole life insurance?

Whole life insurance is a permanent policy — meaning it gives you lifelong coverage. 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.

The key things to know about whole life insurance:

  • You usually need to take a medical exam. Your insurer is committing to cover you for life, so it will want an accurate assessment of your health. Some insurers offer no-medical-exam policies, but those policies generally come with higher premiums and lower payouts.
  • You 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.

Guide to whole life insurance

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

Name Product Issue Ages Coverage Range Medical Exam Required State Availability
18 - 85 years old
$10,000 to $10,000,000+
Depends on provider and policy
All 50 states
Compare affordable quotes from 12+ A-rated life insurance companies side-by-side.
21 - 54 years old
$50,000 to $1,000,000
Not available in Alaska or New York
Affordable 2-, 10- and 20-year term life insurance policies. Instant quotes and no medical exams.
20 to 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.
18 - 64 years old
$100,000 to $3,000,000
All 50 states
Customized term life insurance policies up to $3 million, no medical exam for certain applicants.
25 - 60 years old
$100,000 to $5,000,000
Available in all states except for Montana
Offers term life insurance with accelerated underwriting. No-exam coverage up to $1,000,000 for those who qualify.

Compare up to 4 providers

Updated November 18th, 2019
Name Product Issue Age Financial Strength Pays Dividends
18 to 85
Varies by provider
Varies by provider
Compare affordable quotes from 12+ A-rated life insurance companies side-by-side.
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.
18 to 80
Varies by provider
Varies by provider
Get a quote within minutes from more than a dozen insurers.
50 to 85
A.M. Best: A-
Get a term or whole life insurance quote from Fidelity Life - starting as low as $15/day.
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.
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.

Compare up to 4 providers

Which policy 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 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 getting close to the age of 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?

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 healthy, nonsmoking 30-year-old might pay $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.

Bottom line

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.

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