Both term 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 needs. Many life insurance buyers compare term vs. whole life insurance in their decision-making process.

Put most simply, term life insurance is usually 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. Whole life (and other types of permanent life insurance) is usually good for people who want their beneficiaries to receive a payout no matter when they die. Here's a closer look:

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

You want to: You may need:
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 needs of different lengths. 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.

The main differences between term vs. whole life insurance

Term life insurance is the easiest to understand among life insurance types: You need to choose only an amount and a term length. You should go into the purchase understanding that you might outlive the policy. That means you could pay for 10, 20 or even 30 years without any life insurance payout if you're still living. However, the policy has served its purpose of being a safety net, even when it didn't end in a claim.

Whole life insurance provides a payout no matter how old you are when you die, as long as the premiums were paid. Whole life also has a couple layers of complexity: The policy contains a cash value account that typically builds slowly over time. You can take loans against the cash value or withdraw money from it. Some whole life policies earn dividends. That money can be used to pay premiums or buy more life insurance, or just taken as cash.

Feature Term life Whole life
Level premiums Yes Yes
Guaranteed death benefit for your beneficiaries Yes Yes
Option to purchase riders that add coverage features Yes Yes
Builds cash value No Yes
Choices of length Typically 5, 10, 15, 20 or 30 years Your entire life
Death benefit is generally tax-free to beneficiaries Yes Yes
Opportunity to earn dividends No Yes, if you have a "participating" policy
If you don't want the policy anymore You get nothing You get the "surrender value" of the policy, based on cash value minus a fee

Term life vs. whole life insurance rates

Term life insurance is significantly cheaper than whole life insurance. That's because whole life insurance is guaranteed to pay out and it builds cash value. Term life has no cash value and many policies don't pay out because policyholders outlive the term.

Life insurers generally offer a few options for payments, including monthly, quarterly and annually.

We looked at rates for a small $100,000 policy and found whole life to generally be at least six times more expensive than a 30-year term life policy.

Comparison: Term vs. whole life rates for a $100,000 policy

Gender and age 30-year term life
annual rate
Whole life
annual rate
Male age 30 $174 $1,025
Male age 40 $245 $1,513
Female age 30 $145 $916
Female age 40 $199 $1,330
Source: EverQuote research. We average the three cheapest rates found for term and whole life. Rates are for men and women of average height and weight, in very good health. Your own rates will be different.

For a $250,000 policy, rates were at least nines more expensive for whole life vs. term life.

 

Term life vs. whole life insurance rates

Comparison: Term vs. whole life rates for a $250,000 policy

Gender and age 30-year term life
annual rate
Whole life
annual rate
Male age 30 $277 $2,477
Male age 40 $354 $3,671
Female age 30 $238 $2,227
Female age 40 $293 $3,242
Source: EverQuote research. We average the three cheapest rates found for term and the two cheapest rates found for whole life. Rates are for 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 always get better rates. Also, by waiting you may develop health conditions that could push rates higher.
  • You'll likely get a price break for paying annually.
  • Compare quotes from multiple companies to know if you're getting a good deal.