- Term life offers temporary coverage, while whole life offers lifelong coverage.
- Term life premiums are initially cheaper, but whole life may be more cost-effective in the long run.
- Whole life offers a cash value component, while term doesn't.
- Compare life insurance online in minutes with Everyday Life Insurance.
If you're considering buying life insurance, you might debate your options between term life insurance and permanent life insurance. Permanent life insurance comes in a few variations, the most popular being whole life insurance. This policy is a hybrid between a savings vehicle and an insurance policy. Deciding which insurance is right for you depends on your coverage needs, budget, and financial goals.
Term life insurance vs whole life insurance: key features
Coverage period
Term life insurance lasts for a fixed period of time, usually 10, 20, or 30 years. While permanent life insurance provides coverage for your entire life.
Premiums
Since term life coverage eventually expires, insurance companies sell it at a significantly cheaper premium than whole life insurance. The average cost of life insurance for a 20-year term life policy with a $500,000 death benefit is $26 (for a 30-year-old male and female with a few health conditions). Meanwhile, the average monthly cost of a $500,000 whole life policy is about $451 per month (for a 30-year-old male and female in good health).
Keep in mind that if you want long-term protection, renewing your term may be more expensive than purchasing a whole life insurance policy from the start.
Cash value
Unlike term life insurance, whole life insurance has a cash value component. With this feature, a portion of your premium goes towards keeping your insurance coverage active. The other portion goes toward your cash value, which grows your policy based on a set interest rate.
Eventually, you can withdraw or take out a loan on your cash value. However, you can only use those funds during your lifetime, as your insurer won't pass it on to your insurance beneficiaries.
Death benefit
Both term and whole life insurance pay out a death benefit to your beneficiaries. However, if you outlive your term policy, your beneficiaries won't get a death benefit. You must renew your policy if you want continued coverage. Unfortunately, a Penn State University study found that 99% of term policies never pay out.
Flexibility
Term life insurance is generally more flexible than whole life insurance. This is because you can choose the term length and coverage amount, allowing you to customize how much you pay.
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When term life insurance is a good fit
Limited budget
The cost of a whole life insurance isn't feasible for many people, especially those on a tight budget. Term life is the optimal choice for most shoppers because of its affordability.
Temporary needs
Term life coverage may suffice if you anticipate only needing coverage for a certain amount of time. For example, you may want enough coverage to support your family while your children are young or while you still have a mortgage.
Maximizing death benefit
Passing away can cause financial hardship to your loved ones, especially if your dependents rely on income for a significant amount of time. If you need a large death benefit to maintain your family's current lifestyle, term life offers significant coverage at an affordable rate.
When whole life insurance is a good fit
Lifelong coverage
Whole life insurance may be worth considering if you need coverage for your entire life. This is especially important if you have lifelong dependents.
As mentioned, term life policies aren't guaranteed to pay out. Many companies may refuse to convert policies if you have major health concerns at the time of application. Additionally, qualifying for a new policy may be impossible or significantly costly, given your age, health conditions, and other factors.
If you think you'll need coverage for longer than 30 years (some companies offer 40-year terms), it's important to weigh the risks of opting for a temporary policy over whole life insurance.
Cash value accumulation
If you'd like to pay a bit more to have your premiums earn interest, consider whole life insurance. You can borrow from or withdraw your cash value policy to fund your financial goals, provide income during retirement, pay your premiums, or increase your death benefit through certain riders.
How to choose between term and whole life insurance
Choosing between term and whole life insurance depends on your individual needs and financial goals. Term life is more affordable and flexible for temporary needs, while whole life offers lifelong coverage and a cash value component. Consult with a financial advisor to determine the best option for you.
Compare life insurance options
Not Rated
A
- 100% online application process, quotes in minutes
- Coverage starts immediately once approved
- Term policies renewable up to age 94 for qualifying applicants
- No conversion options to turn term policies to whole life for no exam policies
- Whole life policy limits are lower
762
A
$19 for males and $16 for females per month
N/A
Up to $2 million
- Guaranteed life insurance available for seniors between 50 and 80
- High financial strength and customer service ratings
- Some policies only have benefits up to $25,000
- AIG may not offer more extensive death benefits for seniors
N/A
A+ (Superior)
- Offers level term and whole life policy
- Discount and bundling opportunities
- Available in all 50 states
- Limited add-on coverage options
- No universal policies
- Online complains indicating life insurance service does not match other Amica products
- Term life and whole life
FAQs
Which is cheaper, term or whole life insurance?
Term life insurance is generally much cheaper than whole life for the same amount of coverage. However, if you anticipate needing coverage for more than 30 years, it's important to compare the cost of starting with a whole life policy versus renewing your term life policy. Insurers may raise your rates or deny coverage depending on your age and health status.
Can I convert term life insurance to whole life insurance?
Yes, you can convert a term life insurance policy to whole life. However, this will likely increase your premiums.
Can I cash out my whole life insurance policy?
Yes, ou can cash out of a whole life insurance policy by surrendering or canceling your policy. However, you'll lose your life insurance coverage and may incur taxes and surrender fees.
