Term Vs Whole Life Insurance Comparison Chart: Critical Differences & Similarities
While both enjoy similar attributes, there are differences between term life and whole life, which primarily consist of cost, policy duration, equity (cash value), and affordability.
| Policy Feature | Term Life | Whole Life |
|---|---|---|
| Typical Coverage Duration | 10, 20 or 30 years or until age 80-85 | Lifetime |
| Cost | Lowest | Highest |
| Premiums | Usually fixed, but can increase every 5 years | Fixed |
| Typical Maximum Age For New Applicants | 80 | 90 |
| Cash Value | No | Yes |
| Policy Loans | No | Yes |
| Can Earn Dividends | No | Yes |
| Surrender Value | No | Yes |
| Guaranteed Acceptance Option | No | Yes |
| No Medical Exam Options | Yes | Yes |
| Best Suited For | Temporary needs such as as financial debts or income replacement | Permanent needs such as final expenses or estate taxes |
| Pays Tax-Free Cash Death Benefit | Yes | Yes |
How Does Term Life Insurance Work?
As the name implies, term life insurance terminates after a predefined period of time, and it is the most affordable type of life insurance. Generally, a term policy will last either 10, 15, 20, 25, 30, or 40 years. However, some companies offer term coverage that lasts until you reach a specific age, such as 75 or 80 years old.
In either scenario, nearly all term life policies will expire in the age 80-85 range. Whenever a term life policy expires, you don’t get any money back. You’re simply uninsured. Most term life policies have a fixed rate for the entire policy term. However, some have regular price increases every five years.
How Does Whole Life Insurance Work?
Whole life insurance is a type of permanent coverage that combines life insurance with a savings component known as cash value. With every payment you make, a small portion is allocated to the cash value account, which grows tax-deferred and typically earns interest at a fixed rate. The policy owner can borrow against the cash value, which can be used for any purpose they desire.
Whole life policies offer ironclad guarantees: premiums never increase, the death benefit cannot decrease, and the policy lasts for your entire life. It’s worth noting that whole life insurance is always more expensive than term life or universal life insurance due to its permanent nature and guarantees that nothing will change.
Cost Comparison Of Term Vs Whole Life Insurance
The cost of both whole life and term life insurance is based on your age, gender, health history, state of residence, lifestyle, tobacco or nicotine usage (if any), and how much coverage you select. Depending on the aforementioned factors, whole life insurance typically costs between 2 and 20 times more than term life insurance.
Below is a breakdown of how the cost of term life insurance compares to the cost of whole life insurance.
Reasons To Buy Term Life Insurance
- Only need coverage for a temporary period of time: You don’t need permanent coverage (which costs much more) to cover a temporary need. You may have a debt to cover or need life insurance until you get your next job. Ultimately, there are plenty of temporary reasons to get life insurance, in which case, term is the best option.
- You’re a primary income earner of your household and have dependents: If you have dependents, be it a spouse or children, who rely on your income for their way of life, you need life insurance badly. If so, you should aim to obtain enough coverage to replace your lost salary for the next 10-20 years, which is likely a large sum. Term life insurance is very affordable, making it possible to acquire substantial amounts at a cost you can afford. Conversely, permanent coverage with a huge death benefit is cost-prohibitive for most working adults.
- You’re looking for very low-cost life insurance: Term life insurance is the least expensive type of life insurance. If you’re on a tight budget, term life insurance will offer the most affordable rates.
- Want whole life insurance- just not right now: Nearly all term life insurance policies come with a convertibility option. That means you can convert the policy to whole life in the future. When you convert, there is no qualification required, so your request will not be denied. Keep in mind that when and if you do convert to whole life, your price will considerably increase because A) whole life costs much more than term life, and B) the rate will be calculated based on your age when you exercise the conversion privilege.
Reasons To Buy Whole Life Insurance
- Want lifelong coverage: Whole life insurance lasts for your entire life, whereas term life insurance will end at a predetermined date.
- Need a locked-in price that fits your budget for the rest of your life: Whole life insurance rates cannot change, which is especially helpful for those on a fixed income. You can trust that the payment will not exceed your budgetary means now or in the future.
- You want cash value growth: The cash value in a whole life policy can be beneficial if you need cash in an emergency or would like to withdraw it for any other reason.
- Want to offset death taxes: Ultra-wealthy Americans who wish to transfer property to their heirs and have an estate valued at $13,990,000 or more (as of 2025) will have to pay a federal estate tax from 18% to 40%. Whole life insurance is a common tool used by the wealthy to offset the taxes that will be incurred when they pass away and leave their estate to their loved ones.
- Pay for your final expenses: If you have no means to cover your end-of-life costs, you certainly don’t want to rely on temporary life insurance coverage for that. Instead, you’ll want whole life insurance, so you know that you have lifelong coverage to ensure your final expenses are taken care of.
- You don’t mind paying more for guarantees: There is no denying the fact that whole life insurance is much more expensive than term life insurance. However, many adults want to know for certain that their payment remains fixed and that their coverage will last indefinitely, and they are willing to pay extra for these benefits. If that is you, then whole life insurance would be your best option.
- Need life insurance, but don’t want to answer any health or lifestyle questions: Many life insurance companies offer what’s commonly called “guaranteed issue life insurance,” a type of whole life policy that does not require health or lifestyle questions. The insurer literally knows nothing about your health history. These types of policies are always whole life. No insurance providers offer guaranteed acceptance term life insurance. Keep in mind that with these policies, you’re not insured for natural causes of death during the first two years, and $25,000 is generally the maximum amount of coverage you can buy.
Which Type Of Life Insurance Is Best- Term Or Whole Life?
While there are financial experts who will make a definitive claim that one type of life insurance policy is always better than the other, the truth is that whether or not term is better than whole life or vice versa depends on your needs.
Generally, term life insurance is best suited for individuals with temporary needs, such as covering a debt like a mortgage or needing to replace their income if they’re the primary breadwinner at home. Generally, whole life insurance is best at covering permanent needs, such as paying for end-of-life expenses or estate taxes.
Alternatives To Whole Life And Term Life Insurance
Depending on your goals, needs, background, and financial situation, you may find that both term life and whole life insurance are undesirable. If so, consider these other life insurance options; hopefully, there is one that will suit your needs.
Final expense burial insurance
Many insurers now offer what’s called “burial insurance,” a type of whole life insurance specifically designed to cover your final expenses. If you only need a small amount of coverage to pay off your funeral costs, then a final expense policy is likely your best option.
Universal life insurance (UL)
Universal life insurance is similar to whole life insurance in that it offers permanent coverage that accumulates cash value. Where it differs from a whole life policy is that it lacks guarantees regarding the death benefit and premiums, thus making it less expensive. Essentially, universal life policies are a cheaper way to obtain permanent coverage. However, be aware that if you withdraw too much cash value, the insurer may raise your premiums or reduce the death benefit. That cannot happen with a whole life policy.
Indexed universal life insurance (IUL)
Indexed universal life insurance is a type of universal life policy that has its cash value tied to market indexes. This allows for greater cash value growth and a reduced chance that the policy will implode due to insufficient cash value. Overall, an IUL will be a fair amount less expensive than a whole life policy.
Cremation insurance
Cremation insurance is a small life insurance policy designed to cover cremation costs and other related funeral expenses.
Frequently Asked Questions
The only time you’ll get your money back when you outlive a term policy is if you had a “return of premium” rider added to it. Term with return of premium stipulates that when the policy expires, the insurer will refund 100% of the premiums you paid. Not every insurer offers this rider, and those that do will not allow it to be added after the policy is issued. You must elect this rider at the time you apply.
The death benefit payout for any life insurance does not create a taxable liability for the beneficiaries.
In most cases, when a person with a whole life policy dies, only the death benefit pays out. The only time some of the cash value will pay out in addition to the death benefit is if you have a participating whole life policy that has accrued dividends via the cash value.
Nearly all term life insurance policies include the option to convert to a whole life policy. Most of the time, the option to convert remains available until you reach the midpoint of the term’s length. For example, if you have a 20-year term, the conversion window would typically be the first 10 years. The main benefit of the conversion privilege is that it’s guaranteed and does not require underwriting. Please note that when you convert, there will be a significant price increase.
Only participating whole life insurance policies have the potential to pay dividends. A participating whole life insurance policy has aggressive cash value growth and far stricter underwriting than a non-participating one.
- Nationally licensed life insurance agent with over 16 years of experience.
- Personal annual production that puts him in the top .001% out of all life insurance agents in the nation.
Anthony Martin is a nationally licensed insurance expert with over 16 years of experience and has personally served over 10,000 clients with their life insurance needs. He frequently authors entrepreneurial and life insurance content for Forbes, Inc.com, Newsweek, Kiplinger, and Entreprenuer.com. Anthony has been consulted as an expert life insurance source for dozens of high-profile websites such as Forbes, Bankrate, Reuters, Fox Business, CNBC, Investopedia, Insurance.com, Yahoo Finance, and many more.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
- Nationally licensed life insurance agent with over 20 years of experience
- Best selling Amazon author.
Jeff Root is a nationally licensed life insurance expert with over 20 years of experience. He has personally helped over 3000 clients with their life insurance needs. Jeff is a best-selling Amazon author and the managing partner of a highly successful insurance brokerage that manages over 2,500 licensed insurance agents across the USA. He has been a featured life insurance source for prestigious websites such as Forbes, Bloomberg, MarketWatch, Nerdwallet, and many more.
- Nationally licensed life insurance agent with over 15 years of experience
- Best selling Amazon author of five insurance sales books.
David Duford is a nationally licensed insurance expert with over 15 years of experience. He has personally helped more than 15,000 clients buy life insurance. David has been featured as an expert source for highly authoritative publications such as A.M. Best and Insurancenewsnet. He also runs one of the largest Youtube channels to help aspiring insurance agents serve their clients better.
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$13,990,000 or more. https://www.usbank.com/wealth-management/financial-perspectives/trust-and-estate-planning/estate-taxes.html
