Term vs. Whole Life Insurance

Posted May 6th, 2019 by Amy Danise

Both term life and whole life insurance can provide an important financial safety net for your family. But their features and costs are significantly different. Since life insurance is a long-term purchase, it’s important to choose the policy that fits your goals for life insurance.

The basics

  • Term life insurance is good for people who want insurance for specific financial obligations with a known end. For example, the years until a mortgage is paid off, or the years until retirement. It’s available in specific lengths such as 5, 10, 15, 20 and 30 years. It has no cash value.
  • Whole life insurance is good for people who want their beneficiaries to receive a payout no matter when they die. It lasts no matter how long you live, as long as the premiums are paid. It builds cash value.

Term vs. whole life: Which is right for you?

You want to: Best choice:
Provide funds that would replace your income until you retire Term life
Provide funds so a spouse can pay off a mortgage Term life
Cover the years until children graduate college Term life
Buy the cheapest life insurance possible Term life
Provide funds for heirs to pay for a funeral and/or final expenses such as medical bills Whole life
Provide money after you’re gone for a special needs child Whole life
Provide money for your heirs to pay state or federal estate taxes Whole life
Be able to access cash value within a life insurance policy Whole life

Some people buy multiple policies to cover different needs. For example, someone might buy a small whole life insurance policy to cover a funeral and also a 30-year term life policy to cover a 30-year mortgage.

If you’re unsure what you need, consider consulting a fee-based financial advisor.

Term vs. whole life insurance comparison

Term life vs. whole life insurance rates

Term life insurance is usually significantly cheaper than whole life insurance. That’s because whole life insurance is guaranteed to pay out no matter when you die and it builds cash value.

Term life has no cash value and many policies don’t pay out because policyholders outlive the term length or stop paying for the policy.

Price comparison: $500,000 in term life vs. whole life

Sex and age 30-year term life, average annual cost Whole life, average annual cost
Male age 30 $406 $5,160
Male age 40 $652 $7,395
Female age 30 $359 $4,610
Female age 40 $551 $6,520
Methodology. We averaged the three cheapest rates found for term life, and used whole life rates from SBLI. Rates are for non-smoking men and women of average height and weight, in very good health. Your own rates will be different.

How to save money on term and whole life insurance

  • Buy a policy as soon as you have a life insurance need. Younger ages get better rates. Also, if you wait you may develop health conditions that could push rates higher.
  • You’ll likely get a price break for paying annually rather than monthly.
  • Compare life insurance quotes from multiple companies to get a good deal.

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