Key Takeaways
- Term life costs 5-15x less than whole life for the same death benefit
- Whole life builds cash value but comes at a premium price
- Term is best for: Young families, mortgage protection, temporary needs
- Whole life is best for: Estate planning, lifelong coverage needs, forced savings
Quick Comparison: Term vs Whole Life
| Feature | Term Life | Whole Life |
|---|---|---|
| Cost (35-yr-old, $500K) | $25-35/month | $300-500/month |
| Coverage Period | 10, 20, or 30 years | Your entire lifetime |
| Cash Value | None | Yes, grows tax-deferred |
| Premiums | Level for term period | Level for life |
| Best For | Most families | Estate planning, HNWI |
What Is Term Life Insurance?
Term life insurance provides coverage for a specific period—typically 10, 20, or 30 years. If you die during the term, your beneficiaries receive the death benefit. If you outlive the term, the policy expires with no payout.
Think of it like renting: You pay for coverage when you need it most (while raising kids, paying a mortgage) but don't build equity.
Term Life Pros
- âś… Affordable: 5-15x cheaper than whole life
- ✅ Simple: Easy to understand—you pay, you're covered
- âś… Flexible: Choose exactly how long you need coverage
- âś… Convertible: Many policies let you convert to permanent later
Term Life Cons
- ❌ Coverage ends when term expires
- ❌ No cash value accumulation
- ❌ Premiums increase significantly if you renew after term
đź’ˇ Pro Tip
Buy term and invest the difference. If you invest the $300+/month you'd save compared to whole life, you'll likely build more wealth in a regular investment account than whole life's cash value.
What Is Whole Life Insurance?
Whole life insurance provides permanent coverage that lasts your entire life, as long as you pay premiums. It also builds cash value—a savings component that grows tax-deferred and can be borrowed against.
Think of it like buying a house: Higher monthly payments, but you build equity over time that you can access if needed.
Whole Life Pros
- âś… Permanent coverage: Never expires as long as premiums are paid
- âś… Cash value: Builds tax-deferred savings you can borrow against
- âś… Level premiums: Never increase, even as you age
- âś… Dividends: Participating policies may pay dividends
Whole Life Cons
- ❌ Expensive: 5-15x more than term for same coverage
- ❌ Low returns: Cash value typically earns 1-3% annually
- ❌ Complex: Many moving parts and fees
- ❌ Surrender charges: Early cancellation penalties
Cost Comparison: Real Numbers
Here's what a healthy 35-year-old male would pay for $500,000 in coverage:
| Policy Type | Monthly | Annual | 20-Year Total |
|---|---|---|---|
| 20-Year Term | $28 | $336 | $6,720 |
| 30-Year Term | $42 | $504 | $10,080 |
| Whole Life | $385 | $4,620 | $92,400 |
The difference: Over 20 years, you'd pay $85,680 MORE for whole life. Even if you invested that difference conservatively, you'd likely come out ahead vs. whole life's cash value.
When to Choose Term Life
Term life insurance is the right choice when:
- đź“Ś You have a mortgage to pay off
- đź“Ś You have young children (cover until they're adults)
- đź“Ś You have a spouse who depends on your income
- đź“Ś You want maximum coverage for minimum cost
- đź“Ś You're disciplined enough to invest separately
Rule of thumb: Match your term length to your longest financial obligation. If your youngest child is 5 and you have a 25-year mortgage, a 20-25 year term makes sense.
When to Choose Whole Life
Whole life insurance makes sense when:
- đź“Ś You've maxed out 401(k), IRA, and other tax-advantaged accounts
- đź“Ś You have a large estate and need liquidity to pay estate taxes
- đź“Ś You want to leave a guaranteed inheritance regardless of when you die
- đź“Ś You have a special needs dependent who will need care for life
- đź“Ś You're certain you can afford premiums indefinitely
What About Universal Life?
Universal life (UL) is a middle ground—permanent coverage with flexible premiums. However, UL policies are complex and risky if not properly funded. For most people, we recommend sticking with term or guaranteed whole life.
The "Buy Term and Invest the Difference" Strategy
This is the approach most financial advisors recommend:
- Buy affordable term insurance for the coverage you need
- Invest the premium difference in low-cost index funds
- Build wealth that's more accessible than cash value
Using our example above: If you bought term ($28/mo) instead of whole life ($385/mo) and invested the $357/month difference at 7% average returns, after 20 years you'd have approximately $190,000—far more than typical whole life cash value.
FAQs: Term vs Whole Life
Is term or whole life insurance better?
For most people, term life insurance is better because it provides more coverage for less money. Term is ideal for covering specific needs like a mortgage or children's education. Whole life may be better for those wanting permanent coverage plus cash value accumulation.
How much does term vs whole life insurance cost?
Term life insurance costs 5-15x less than whole life. A healthy 35-year-old can get a $500,000 20-year term policy for $25-35/month, while whole life for the same coverage costs $300-500/month.
Can I convert term to whole life?
Yes, most term policies include a conversion option allowing you to convert to permanent coverage without a medical exam. This is valuable if your health declines but you still want lifelong coverage.
What happens when term life expires?
When your term ends, coverage stops. You can either let it lapse (if you no longer need coverage), renew at higher rates, or convert to permanent insurance. Many people find they no longer need coverage once their mortgage is paid and kids are independent.
The Bottom Line
For 90% of people, term life is the smarter choice. It provides the protection your family needs at a price you can actually afford—leaving you money to invest for retirement.
Whole life has its place for high-net-worth individuals with complex estate planning needs. But if you're not sure which is right for you, start with term. You can always convert later if your situation changes.