Term Vs Whole Life Insurance | How To Choose In 2021!

 By Sa El Published:

There are two primary types of life insurance that make up all of the different forms of life insurance.

They are term life insurance and permanent life insurance (also known as whole life insurance.) 

term life vs whole life

Term life insurance - Instead of giving you the proper term life insurance definition, I am going to put it in "Plain English." Term life insurance is a type of life insurance policy that will last for a specific amount of time (term length) as long as the premiums are paid. You will also find that term life insurance quotes are always more affordable than whole life insurance quotes.

Permanent life insurance - In "Plain English" the whole life insurance definition is much easier to understand.  Permanent or Whole life is a type of life insurance that will last for your whole life as long as the premiums are paid. Whole life insurance is the most known form of permanent life insurance.

In this post, I will cover the difference between term and whole life insurance, go over their pros and cons and also discuss the cost difference between the two. 

What Is Term Life Insurance?

Term life insurance is a type of life insurance that will pay out a death benefit to your beneficiary if you pass away during a specific “term length” and your premium payments are current. The way the policy works is that you purchase a certain amount of coverage ($250,000) for a certain amount of time (30 Years) for a set monthly price ($45.00).

If you live past the term, the policy ends, or you have to renew it, and if you die before the term period is up then the plan will pay out 100% of the coverage amount (also known as the death benefit) to your beneficiary.

When you start shopping for term life, you should:

  • Choose a term length that coincides with the years you’ll be paying the bills, how long you want the coverage to last and if you have any kids, for long enough for them to become an adult.
  • Calculate your current and future financial needs to purchase an amount your family would need if you were no longer there to provide for them.

The goal is for your family’s need for life insurance to end around the time the term expires.

Your kids will be on their own, you’ll have paid off your house, and you should have plenty of money in savings to serve as a financial safety net.

Policy Features Of Term Life Insurance

  • Can provide a death benefit & living benefits
  • Pays benefits only if you die while the term of the policy is in effect
  • The accelerated death benefit rider pays benefits while you are living
  • Rates are guaranteed level and locked in for the life of the policy
  • Easiest and most affordable life insurance option to buy
  • Purchase for a specific term length, such as 5, 10, 15, 20 or 30 years
  • Becomes more expensive to purchase as you age, especially after age 50
  • The term must be renewed once it ends if you want coverage to be extended
  • Can be converted to whole life insurance

Term Life Insurance Pros And Cons

Pros

  • Term life is straightforward, and policies are easy to understand and easy to buy
  • Term is the most affordable type of life insurance for the amount of coverage.
  • You can cancel a term policy at any time before it expires without losing any value.

Cons

  • Your coverage expires at the end of the term
  • You probably won’t be able to afford to renew the policy
  • You will have to shop for new life insurance when your term ends.

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What Is A Whole Life Policy?

A Whole Life policy is a type of life insurance that covers you for your entire life and guarantees the payout of a death benefit to your beneficiaries as long as your premiums remain paid. 

The policy also builds what is known as cash value.

term life vs whole life

This cash value is an investment component and grows slowly and tax-deferred. This means you won’t have to pay taxes on its gains while they’re accumulating.

You can borrow against the cash value inside of the account or surrender the policy for the cash. However, if you don’t repay policy loans with interest, you’ll reduce your death benefit.

If you surrender the policy, you’ll no longer have coverage in-force. Although it’s much more complicated than a term life insurance policy, whole life is the purest form of permanent life insurance.

Here’s why:

  • Your premium remains the same for as long as you live
  • The death benefit is guaranteed
  • Policy’s cash value account grows at a guaranteed rate

Some whole life policies can also earn annual dividends, a portion of the insurer’s financial surplus.

Policy Features Of Whole Life Insurance

  • Covers you for life
  • Provides a death benefit
  • Provides cash value that builds during the life of the policy
  • Can be purchased without a medical exam, but at a higher cost
  • Takes 12 years or more to build up a decent cash value
  • Can be a good choice for estate planning
  • Cash value is based on how much the return on investment is worth
  • You can borrow against the cash value
  • More expensive than term life

Whole Life Insurance Pros And Cons

Pros

  • The policy will last for your entire life.
  • It works as a type of forced savings vehicle.
  • Policy will build cash value over time.

Cons

  • Whole life can be up to 6 times more expensive than term life
  • People often end the coverage sooner than expected due to costs
  • Much more complicated product than term life insurance

What Is The Difference Between Term And Whole Life Insurance? 

Term life insurance only lasts for a specific term length (usually 10, 15, 20, 25, or 30 years), and whole life insurance will last for your entire life. If you outlive a term life policy, you will no longer be covered and need to renew your policy. However, since whole life policies will last your entire life, the policy is guaranteed to payout and will also have much higher premiums than term life insurance.

Term Life Vs. Whole Life: Policy Differences

Policy Features

Term Life Insurance

Whole Life Insurance

Premiums Don't Increase

Death Benefit Guaranteed

Choose A Set Term Length

Cell

Lowest Premiums

Cell

Lasts Your Whole Life

Cell

Builds Cash Value

Cell

This isn't the ultimate list of features, however, it should give you a more solid idea of the difference between whole life and term life.

INSURANCE WHERE YOU LIVE

Life insurance by state.

Comparing The Costs Of Term Vs Whole Life

Let's be honest, a huge factor for pretty much 95% of us is going to be price.  Below we look at the differences between whole and term life insurance costs.

  • Rates For Men

  • Rates For Women

$250,000 Term and Whole Life Rates For Men

Age

20 Year Term Quotes

30 Year Term Quotes

Whole Life Rates

30 Years Old

$12.68/month

$19.00/month

$200.25/month

40 Years Old

$17.80/month

$28.59/month

$297.66/month

50 Years Old

$39.42/month

$68.25/month

$462.33/month

As you can clearly see, term life insurance is much more affordable than whole life insurance.

The longer the term length, the higher your premiums will be and the longer you wait to get covered the higher the premiums can go.

THE SIMPLY INSURANCE WAY

Life Insurance made easy.

Agents not required.

Get quotes and sign up online without talking to an agent. But, we are here if you need us. 

Unbiased, expert advice.

Get unbiased insurance education from licensed experts and also avoid dodgy sales calls.

Coverage in minutes.

You can get life insurance coverage within minutes of getting your quotes and applying.

Term Life Insurance vs Whole Life: How To Choose

As a licensed insurance agent, I recommend term life insurance for 95% of the entire U.S. population. This is because they are very easy to understand and the premiums are super affordable.  However, there are probably some minor instances where whole life insurance is beneficial. 

Go With A Term Life Policy If: 

  • You want the most affordable monthly premiums.
  • You are young and just starting a family.
  • Only need coverage for a specific time period.
  • You need an alternative to mortgage life insurance for a 15 or 30 year mortgage
  • Want income protection for your family as they grow. 

Go With A Whole Life Policy If:

  • You decide to provide money for your heirs to cover any estate taxes. 
  • You have a child with special needs that will need life-long care. 
  • You want a small policy to cover your final expenses.

In all honesty, if you need life insurance you should look into Term Life Insurance first, not only is it a great product, but we asked over 40 personal finance experts if term or whole life was better and they ultimately chose term.

You can click here or on any of the above buttons to get an instant term life quote and to get coverage started.

Frequently Asked Questions


Which is better whole life or term life insurance?

Term life is better than whole life when it comes to pricing and understanding how the product works. Term life is more affordable because it doesn't build cash value, and there is a possibility you can outlive the policy.

Why Whole life insurance is a bad investment?

Whole life insurance is a bad investment because it isn't an investment instrument. You should only purchase a whole life insurance policy for the "life insurance." On top of that, the premiums are usually very high. If you are looking for investments, you should look elsewhere.

What is the difference between term and whole life insurance?

The difference between term and whole life insurance will be the costs and how long each policy will last. Whole life policies will last for your entire life and cost about 10x more than term life insurance. Term life insurance policies only last for a set time period and have much more affordable rates.

What is the downside of whole life insurance?

The biggest downside of whole life insurance is the monthly premiums and how complicated the products can be to understand. There is no reason to pay thousands of dollars per month for a whole life policy if you are in your 20's, 30's, 40's or even 50's.

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The final insurance policy premium for any policy is determined by the underwriting insurance company following the application.


Sa El

About the author

Sa El is the Co-Founder of Simply Insurance and a licensed Insurance Agent with over 13 years of experience in the industry.  He specializes in Life & Health Insurance and is certified in Long Term Care Insurance in the state of Georgia. a licensed real estate agent in the state of Georgia (License #382602), an entrepreneur, insurance educator, and freelance writer.


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