Term vs. Whole Life Insurance: What’s the Difference & Which One Should You Get?

When comparing term versus whole life insurance, term life insurance is more attractive for many people because it’s cheaper. You can usually get a better rate of return by directly investing the premium difference, although certain situations make whole life insurance worth it. Parents, seniors and young children benefit from whole life policies, while young and healthy adults and families may benefit from term life insurance.

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Last Updated: 8/20/2022
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When exploring term versus whole life insurance differences, the main areas of comparison are the cost and benefits. Although whole life is more expensive, it builds cash value and has fixed premiums and a death benefit for life.

While term life insurance is cheaper and easier to understand, its coverage is temporary. If you still need life insurance after the term expires, you’ll pay more for coverage. Many people prefer getting term life and investing the cost difference between term and whole life insurance.

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What Is the Difference Between Term and Whole Life Insurance?

If you've decided that getting life insurance makes financial sense, you may now be wondering about the difference between a term life policy and a whole life policy. The main differences between whole life insurance and term insurance are coverage length, cost and cash value. Term is pure life insurance, offering a death benefit for a set number of years and no cash value, but at a lower price. Whole life lasts your lifetime and has a level death benefit and premiums, but at a higher rate. Whole life also comes with cash value you can access while still alive.

Term vs. Whole Life Insurance

Term Life Insurance
  • Lasts between 1–30 years
  • Cheap
  • No cash value
  • No potential for dividends
  • Might be renewable, but only at current age
  • May be convertible to a permanent life policy
Whole Life Insurance
  • Lifetime coverage
  • More expensive
  • Builds cash value
  • Cash value grows at a guaranteed interest rate
  • May be eligible for dividends

Cost of Term Life Insurance vs. Whole Life Insurance

The cost difference between term and whole life insurance can be substantial. Whole life can cost up to 20 times more than term life insurance. To get an idea of the cost differences between whole and term life insurance, look at the pricing comparison below.

Comparing Costs: Term Life vs. Whole Life

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Term Life Insurance

Annual Cost

$317
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Whole Life Insurance

Annual Cost

$6,127
Whole life insurance policies cost, on average:$5,810 more

This is 1833% more expensive.

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Many people choose term life insurance instead of whole life because it is cheaper and better suited to temporary needs. Most parents get term life policies to cover child expenses like education and childcare. Once children become independent, the financial demand is no longer there, eliminating the need for lifelong coverage.

Benefits of Term Life Insurance vs. Whole Life Insurance

When comparing term life insurance versus whole life insurance benefits, term policies offer cheap coverage and a death benefit. Whole life policies offer a death benefit, cash value and dividend potential and can be used for estate planning purposes. Both are eligible for riders, which vary by company.

Should You Get Term or Whole Life Insurance?

You may be asking yourself, should I buy term or whole life? The answer will depend on your needs. For many people, term life insurance is better because the premiums are lower than those for whole life insurance, and you can invest the cost difference between term and whole life insurance.

With the right investment strategy, you can earn more than the cash value account could grow with a fixed interest rate. However, whole life may be better than term life in certain situations. Consider why term life insurance is better than whole life for many buyers.

What if I’m a senior? Should I still get term life insurance?

Why Term Life Insurance Is Better in Most Cases

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    Your dependents will eventually grow up

    Whether you’re the sole breadwinner or both parents work, many parents get life insurance to cover the costs of raising a child, should one spouse die early. Term life can provide the safety net you need at a fraction of the price of whole life insurance. While whole life may sound like a great choice, eventually, your children will grow up and be independent, possibly eliminating the need for the death benefit.

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    You can just invest on your own

    Free investment into a savings account with a guaranteed interest rate is a selling point for whole life insurance. But if you were to invest the cost difference between term and whole life, you could control your money and potentially reap higher returns than the modest interest rate in a whole life policy.

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    You can afford a larger death benefit

    If you’re young, starting a family, own a home and have debts like car or student loans, the death benefit you need can be substantial. Buying term life versus whole life insurance means you can afford a much larger death benefit for the years you need it. Once your needs are met, the policy can expire and free up the premium you were paying for something else.

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    Debts will eventually be paid off

    Debts only last for so long, even a 30-year mortgage. Term life is a good choice if you want to provide for debts if you should die before you’ve fully paid them. Once you’ve paid them off, there’s no longer a life insurance need to cover them.

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    It covers your prime income-earning years

    If you want to use life insurance as income replacement for your survivors, term life can cover your prime income-earning years at a much cheaper rate than whole life. The closer you get to retirement, the less life insurance you need to replace your income, making term a better option than whole life.

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    It can be converted to permanent life insurance

    With some term policies, you get the option to convert some or all of the death benefit to a permanent life policy. You can take advantage of the cheaper rates for the bulk of your death benefit with a term policy and then convert what you need to permanent life insurance when your temporary financial needs are lower.

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If you’re still trying to decide between term or whole life insurance, check out our best term life article, which ranks our top company picks for term life insurance. The best option for you will depend on your needs and circumstances.

Although term life insurance is best in many cases, whole life insurance may be the best choice in some instances:

  • Business owners can use it to buy out the heirs of a deceased partner or for income replacement if a key employee or partner dies.
  • You can use whole life for estate planning to pay taxes or leave a legacy for your heirs.
  • The cash value of whole life insurance grows tax-free and can be borrowed against or withdrawn from tax-free.
  • Those supporting a lifetime dependent have permanent life needs, which whole life insurance can solve.
  • Some whole life policies come with a long-term care rider, which you can use to pay for long-term care expenses while leaving your death benefit intact.

If your life circumstances make whole life the better choice, check out our whole life company recommendations.

Frequently Asked Questions About Term vs. Whole Life Insurance

When shopping for life insurance, deciding between whole versus term life insurance isn’t always an easy task. Here are the answers to common questions asked about whole life insurance versus term life insurance.

About the Author


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Mandy Sleight is a professional freelance writer and licensed insurance agent. She has her property, casualty, life, and health licenses and has been working in the industry since 2005. Mandy has worked for well-known insurance companies like State Farm and Nationwide Insurance, and most recently as the Operations Coordinator for a start-up employee benefits company.

Mandy earned her Bachelor of Science degree in Business Administration and Management from the University of Baltimore and her Master in Business Administration from Southern New Hampshire University. She uses her vast knowledge of the insurance industry and personal finance combined with her writing background to create easy-to-understand and engaging content to help readers make smarter choices with their budget and finances.