Money & Finance

Term Vs Whole Life Insurance: Pros & Cons

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stack of coins with trees growing (Caption: Term vs Whole Life Insurance)The first decision you need to make when shopping for life insurance is which type to purchase: term or whole life. What’s the difference?

The short answer — term life insurance costs much less but only gives you a finite policy period, while whole life covers your entire lifetime. But there are many other differences you should be aware of to make the best choice for you and your family.

Article Overview

Compare Life Insurance Rates Quote Box

Feature Comparison At A Glance

Term Life Insurance Whole Life Insurance
Duration 1-30 years Life
Premiums Can change over time or remain level Remains level
Low Premium Checkmark
Guaranteed Death Benefit Checkmark Checkmark
Accumulates Cash Value Checkmark
Tax-Deferred Payments Checkmark
Eligible For Annual Dividends Checkmark

What Is Term Life Insurance?

Term life insurance, or temporary life insurance, is the least expensive and easiest way to buy life insurance for a defined period of time, but there can be some drawbacks. First, after the initial policy term, premiums will increase dramatically.

Second, term policies have no cash accumulation feature (unlike permanent — or lifetime — policies). When you buy the policy, you choose the term length. Standard terms are 10, 20 or 30 years. With most policies, the payout (the death benefit) and the premium (out-of-pocket cost) stay the same throughout the term. This is also known as “level term” life insurance.

Key Features

  • Most affordable type of life insurance
  • You choose your term (finite time period), ranging from 5-30 years
  • Only provides death benefits (no cash value)
  • May qualify without a health examination
  • Can be coupled with a permanent life insurance policy
  • Most term policies are convertable to whole or other permanent life insurance
  • Death benefits are normally paid to beneficiaries income tax free



  • Simple to understand
  • The least expensive way to get a high death benefit
  • Coverage and premium payments are temporary — you’re not locked in for life
  • Fixed death benefit for the duration of the term
  • Can be difficult to predict when you’ll need temporary coverage
  • Coverage terms and death benefits are inflexible once you purchase
  • Doesn’t accumulate cash value
  • Most people outlive their term life policy

Tips When Buying A Term Life Policy

  • Select a term that coincides with the years you’ll be paying bills, a mortgage, college expenses, etc.
  • Consider the timing: ideally, your family’s need for the payout would end just before the term expiration, i.e., your kids will be on their own, you’ll have paid off your house and you’ll have enough savings to serve as a financial safety net for your spouse.
  • Buy an amount your family would need if you were no longer there to provide for them. Think of the payout as a replacement of your income.
  • Consider buying a policy that is convertible into permanent insurance. Most term policies will allow you to convert to either whole or universal life insurance within a certain time frame. This could become important if your life insurance needs or health changes during the conversion period.

What Is Whole Life Insurance?

Whole life policies are a type of permanent life insurance that combines death benefit coverage for your entire life with a cash accumulation component (called the “cash value” of the policy).

How does cash value benefit you? The cash value grows each year, tax-deferred, meaning you won’t pay taxes on its gains while they’re accumulating, and you can borrow against the cash value without being taxed. You can even surrender the policy for the cash, but in this case, you will pay taxes on any gains.

Some people choose to take money out of their policies either by surrendering them or taking out a loan once they’ve reached retirement age and the insurance protection is no longer needed.

Whole life insurance is more expensive (per dollar of your death benefit) than term life, but it offers advantages in its lifelong duration and its cash value component.

There are, however, some downsides to whole life insurance. You’re fixed into a stated death benefit and cash value schedule for life, so if you need to make adjustments to either depending on your changing financial needs during your lifetime, your policy may be inflexible.

You can learn more about variations of whole life insurance, including universal life and variable life, that you may want to consider. These are both permanent types of insurance, but each has unique benefits (and drawbacks).

Key Features

  • Lifetime coverage*
  • Provides death benefits and a cash value accumulation
  • Premiums are more expensive than term life
  • Your beneficiaries get a payout no matter when you die*
  • Requires a health exam to qualify, regardless of your age (some policies may waive this requirement, but your premiums will be significantly higher)
  • Your health at the time the policy is issued will dictate the terms of your insurance for the rest of your life
  • May take 10+ years to build up a worthwhile cash value
  • You can withdraw or borrow against a portion of the cash value during the life of the policy



  • Lasts for your lifetime*
  • Older people can still qualify
  • Policyholders have the flexibility of managing the policy’s cash value while still alive
  • You can grow the cash value tax-deferred and take out loans from the accrued cash value tax-free
  • Option to use the accrued cash value to pay premiums with pre-tax dollars
  • Guaranteed cash value accumulation
  • Higher premiums
  • Death benefits and cash value may be inflexible
  • More complicated to manage the policy than term life (but the most straightforward type of permanent life insurance)

* As long as the premiums are paid on time and the policy remains in-force

Premium Cost Comparison

The following pricing estimates are for annual premiums.

Person Covered Policy Amount Term Life (20-Year) Term Life (30-Year) Whole Life
Female, Age 25 $250,000 $176 $219 $1,758
$500,000 $268 $346 $3,454
$1 million $379 $590 $6,655
Male, Age 25 $250,000 $150 $264 $1,967
$500,000 $331 $433 $3,871
$1 million $496 $741 $7,483
Female, Age 30 $250,000 $188 $241 $2,113
$500,000 $288 $382 $4,164
$1 million $412 $647 $8,050
Male, Age 30 $250,000 $217 $283 $2,370
$500,000 $349 $459 $4,676
$1 million $533 $804 $9,060
Female, Age 35 $250,000 $200 $275 $2,489
$500,000 $311 $446 $4,915
$1 million $504 $798 $9,523
Male, Age 35 $250,000 $229 $326 $2,915
$500,000 $365 $533 $5,766
$1 million $608 $956 $11,196
Female, Age 40 $250,000 $257 $376 $2,993
$500,000 $404 $636 $5,923
$1 million $697 $1,169 $11,506
Male, Age 40 $250,000 $296 $469 $3,598
$500,000 $473 $780 $7,132
$1 million $846 $1,446.48 $13,888
Female, Age 45 $250,000 $352 $538 $3,683
$500,000 $584 $944 $7,303
$1 million $1,042 $1,786 $14,358
Male, Age 45 $250,000 $430 $708 $4,484
$500,000 $696 $1,190 $8,906
$1 million $1,300 $2,251 $17,384
Female, Age 50 $250,000 $499 $823 $4,617
$500,000 $860 $1,121 $9,171
$1 million $1,559 $2,902 $17,906
Male, Age 50 $250,000 $648 $1,086 $5,643
$500,000 $1,066 $1,916 $11,222
$1 million $2,001 $3,692 $21,949

* Methodology: We averaged the two lowest and two highest quotes for healthy men and women in each category. Quoting source: InsureNOW Direct.

No clue how much life insurance you should buy? You’re not alone! Read our step-by-step tips and factors to consider on how to determine your ideal policy amount.

Universal Vs Whole Life Insurance

Both universal and whole life insurance are types of permanent life insurance, rather than term life insurance. What’s the difference between permanent and term life? With term life insurance, you’re only guaranteed a death benefit within a specific length of time (the term of the policy). With permanent life insurance, however, you’re guaranteed a death benefit for your entire life — there’s no expiration date for the policy as long as you continue to pay your premiums.

Learn more in our comparison of universal life insurance vs whole life

How Do I Choose Between Term And Whole Life?

Still not sure if term life or whole life is right for you? Here are some common life circumstances in which you’ll want to choose one type over the other. But remember, everyone’s situation is different, so you want to consider all factors.

When To Choose Term Life Insurance

  • You’re on a tight budget and need the most affordable coverage possible.
  • You want to keep the option of whole life insurance open but can’t afford it now. You can convert most term life policies to permanent coverage. Conversion deadlines vary by policy.
  • You only need life insurance to replace your income over a set period, such as when you’re raising your kids, paying for college expenses or paying off your mortgage.

When To Choose Whole Life Insurance

  • You want your beneficiaries to receive a payout regardless of when you die.
  • You need to provide for a lifelong dependent, e.g., a special needs child. You can fund a trust using your life insurance payout to help pay care expenses once you’re gone.
  • You want to be able to spend your retirement savings and still leave money for your heirs.
  • You don’t want your heirs to have to pay hefty estate taxes or end-of-life expenses, such as funeral and burial costs. Otherwise, your heirs may be forced to sell off family heirlooms or property to pay these expenses.

We’re Here To Help

If you have questions about what life insurance product might be right for you, please ask us in the comments section below. Our team includes a licensed life insurance agent, who can answer any questions you might have.

Sally Jones

While attending the University of North Carolina at Chapel Hill’s graduate school for journalism and public relations, Sally began a long career researching and writing about hard-to-understand topics, such as insurance and finance. Her additional experience in marketing, fundraising, public relations and financial planning at various foundations and nonprofit organizations over the years has given her the practical tools to inform consumers about making the smartest business and personal financial decisions. Her work has appeared in many notable media outlets, including The Washington Post, Entrepreneur, People, Forbes, Huffington Post, and more. Speaking of smart living — growing up in the (at-the-time) per-capita murder capital of the U.S. (Richmond, VA) taught her a thing or two about the need for personal and home safety. Sally stays on top of all the latest gadgets and services to protect her and her teenage daughters from potential predators and thieves. And she brings this knowledge to every article she writes.

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