Short answer
Term life covers you for a set period, usually 10 to 30 years, for the lowest premium and has no cash value. Whole life covers you for life at a fixed, much higher premium and builds guaranteed cash value. Term fits temporary needs such as a mortgage or raising children; whole life fits lifelong needs such as final expenses or estate planning.
Key takeaways
- Term life covers a set number of years and usually costs less for the same death benefit.
- Whole life lasts your lifetime, builds cash value and usually has level premiums.
- You can convert many term policies to permanent coverage without a new medical exam.
- Replacing a policy can bring surrender charges and a new contestability period, so compare first.
How term life insurance works
Term life covers you for a set period, often 10, 15, 20 or 30 years. If you die during that time, your beneficiaries receive the death benefit. If you outlive the term, the coverage ends or renews at a much higher price. Term policies generally do not build cash value, which helps keep the premium low.
The premium usually stays level for the length of the term. Many term policies also include a conversion option that lets you switch to permanent coverage before a set deadline without a new medical exam. That feature can be valuable if your health changes during the term.
How whole life insurance works
Whole life covers you for your entire life as long as you pay the premiums. The premium usually stays the same, and part of it builds cash value that grows at a guaranteed rate, tax-deferred. Participating policies may also pay dividends, which are not guaranteed. You can borrow against the cash value, though loans accrue interest and reduce the death benefit if unpaid.
Whole life usually costs much more than term for the same death benefit at the same age. The higher premium pays for lifelong coverage, guarantees and cash value. Cash value often builds slowly in the early years, so if you surrender the policy early, you may get back less than you paid in.
Term vs. whole life at a glance
Seeing the main differences side by side can make the choice clearer. Details vary by insurer and policy, so check your own policy or quotes for exact terms. Here is how the two types usually compare on the points most people care about.
- Length: term covers a set number of years, and whole life lasts for life.
- Cost: term usually costs much less for the same death benefit.
- Cash value: whole life builds it, and term generally does not.
- Premiums: both usually stay level, though term rises sharply if renewed after the level period.
- Options: you can often convert term, and whole life offers loans and other cash value choices.
When each type tends to fit
Term often fits needs with an end date, such as paying off a mortgage, replacing income until retirement or covering a loan. Some people buy term and invest the money they save on premiums. That approach depends on actually investing the difference, year after year.
Whole life often fits needs that last your lifetime, such as final expenses, leaving an inheritance, providing for a family member with special needs or helping heirs pay estate costs. Some people also value the guarantees and the steady savings. Many people combine the two, with a larger term policy for working years and a smaller whole life policy that lasts.
Choosing after 45 or when you already own a policy
Age changes the math. The price of a new term policy rises with each birthday, and many insurers limit the longest terms at older ages. Whole life also costs more the older you are when you buy it. If you own a term policy now, check its conversion deadline. Converting usually keeps your original health rating, though your new premium depends on your current age.
If you are thinking about replacing a policy, compare carefully first. A new policy starts a new contestability period, and surrendering an older permanent policy can trigger surrender charges or taxes. An independent licensed agent can compare your current policy with other options at no cost.
Frequently asked questions
Is whole life insurance worth it?
It can be if you need coverage for life, want guaranteed premiums and cash value, and can comfortably pay the premium for many years. It may be a poor fit if you only need coverage for a set period or if the premium strains your budget. Dropping a whole life policy in its early years often means losing money.
Can I convert term life insurance to whole life?
Many term policies let you convert some or all of your coverage to a permanent policy without a new medical exam. The deadline is usually a set policy year or age, and it varies by insurer. Your new premium depends on your age when you convert, so it is usually higher than your term premium.
What happens when term life insurance expires?
When the term ends, your coverage stops unless the policy renews. Many term policies can renew each year after the level period, though the premium rises sharply with each renewal. If you still need coverage, look at conversion, a new policy or permanent coverage well before the end date, while you have more choices.
Why does whole life cost more than term?
Whole life covers your entire life, so the insurer expects to pay a claim eventually. The premium also funds a guaranteed cash value and, on some policies, dividends. Term covers a limited period, and many term policies end without paying a claim, which keeps the price lower.
Is term or whole life better if I am over 50?
It depends on what you need the coverage to do. If you want to cover a mortgage or replace income for 10 to 20 more years, term may cost far less. If you want coverage that lasts for life, such as for final expenses or an inheritance, whole life or another permanent policy may fit better.
Related guides
- Converting Term Life to Permanent Coverage: How It Works
- How Life Insurance Cash Value Works
- How Much Life Insurance Do You Actually Need?
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