Term Life Insurance vs. Whole Life Insurance: Which Is Better for You

There are many options regarding life insurance. Your lifestyle, financial concerns, and income determine what kind of life insurance to buy and how much you need.

Term and whole life are the two most common different types of life insurance. Term insurance is typically cheaper because it’s only valid for a specific timeframe, usually 30 years or less.

On the other hand, whole life insurance lasts your lifetime if you make payments. It’s much more expensive though, since it lasts the longest.

Life insurance offers peace of mind that your family will be financially secure after your death, so consider their financial needs when buying a policy.

Keep reading to learn the difference between term and whole life insurance and which suits you.

What is term life insurance vs. whole life insurance?

Term and whole life insurance offer you peace of mind and financial assistance for your family if the worst should happen. However, they are quite different.

Term life only applies for a specific period, whereas whole life is good for your lifetime if you make payments.

In addition, costs and benefits are significantly different between the two. For example, term life is cheaper, but whole life includes a cash value you can withdraw money from.

There are also several types of term life insurance, and whole life is just one type of permanent life insurance.

This guide will discuss the basics of term and whole life insurance to help determine which is right for you. Scroll down to learn more about term and whole life insurance.

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What is term life insurance?

Term life insurance lasts a specific amount of time and only pays if death occurs during that time frame. After your term is up, your policy ends. At that point, you can renew it, but rates will be significantly higher.

However, term life is a popular option since initial rates are very low and locked in for the policy’s length. In addition, the death benefit is locked in for the term. It’s also a more budget-friendly option since whole life insurance can cost up to 15 times more.

How much term life insurance do you need? Your lifestyle and financial obligations determine how much term life insurance you need. For example, if you have a home or young children, you’ll want enough insurance to pay off your mortgage or college for your kids.

Term life is only insurance — it doesn’t offer cash value or allow you to borrow against it. Additionally, it doesn’t build wealth or leave a large inheritance. Instead, it’s simply a way to meet particular financial obligations if the need arises.

How long are term life policies?

The length of term life insurance policies varies but typically ranges in five-year increments from 10 to 30 years. However, some insurers offer 35-year term life insurance, and some offer policies up to 40 years.

Remember that once your term life insurance policy ends, your rates increase. So, if you think you’ll need coverage for a longer period, choose the longest term offered to keep rates as low as possible for as long as possible.(For more information, read our “How long should life insurance coverage last“).

Some insurers let you convert a term policy to a whole life policy, so do some research before buying term life insurance. Choosing a company that allows you to change your policy offers flexibility if your needs change.

What are the pros and cons of term life insurance?

Like any insurance product, term life has benefits and drawbacks. Carefully consider the pros and cons before choosing a life insurance product.

Pros of term life insurance include:

• Significantly cheaper rates than other insurance types
• Locked-in rates for a certain period
• Straightforward policies

Term life insurance is an inexpensive way to secure your family’s financial needs after your death. If you choose a policy with a long term, it may cover your financial concerns until your children are adults or your mortgage gets paid off.

Cons of term life insurance include:

• Policies only last for a certain amount of time
• Rates increase significantly once the original term ends
• No cash value accumulating wealth

Since your policy expires, you may not receive any benefit for the money you’ve paid. In addition, rates increase with a longer term, higher payout, or certain medical conditions. Read this article “How much is life insurance?” to find out more.

What is whole life insurance?

Whole life insurance offers coverage for life if you make your payments. Rates are locked in, so there’s no increase or need to find new coverage.

However, rates are significantly higher when you compare term life insurance vs. whole life insurance. While rates may be up to 15 times higher than a term policy, they won’t increase in the future.

Whole life also has a cash value. As you make payments, part of the money contributes to your policy’s cash value. The longer you have your policy, the higher the cash value. After a certain point, you can borrow or withdraw against your policy’s cash value.

You can then use the money however you want, such as paying off your mortgage or college for your children. The amount you withdraw isn’t taxed, but you’ll have to pay taxes on any gains.

While you can choose whether to pay back the amount you borrow, it affects the death benefit. For example, if you borrowed $100,000 and didn’t pay it back before death, the death benefit would decrease by that amount

Keep in mind that you can choose to stop making payments if your financial situation changes. However, many insurers charge a surrender fee of up to 10% of the policy’s cash value. In addition, rates will be higher if you buy more life insurance.

Read more: How to Cancel a Whole Life Insurance Policy

What are the pros and cons of whole life insurance?

Now, let’s break down the benefits and drawbacks of whole life insurance.

Pros of whole life insurance include:

• Locked-in rates for life
• Accrued cash value you can withdraw from
• Tax-free death benefits

Whole life insurance is an excellent option for people wanting to build wealth and use their life insurance to access money later in life. Additionally, rates don’t increase with age or changing medical concerns.

Cons of whole life insurance include:

• Significantly more expensive rates
• Reduced death benefits when you borrow from the cash value
• You may have to pay a surrender fee if you stop making payments

In addition, whole life insurance policies offer many options, such as accidental death life insurance, which can confuse the process. You can also take the cash value you paid and move it to an extended-term life insurance policy. Since rates are so expensive, knowing what you need to avoid paying for unnecessary coverage is essential.

Read more: Life Insurance vs. Accidental Death & Dismemberment (AD&D) Insurance: Which Is Better for You

What should you consider when deciding between term vs. whole life insurance?

When comparing whole life insurance vs. term, your financial situation and needs determine the necessary life insurance type. You can use a life insurance planning tool to help you determine what you need.

If you can’t afford costly rates for whole life, consider a considerably less expensive term life policy. Although you can’t access a cash value, term life insurance can still meet your financial needs.

However, you must consider your financial goals if you can afford whole life insurance. For example, do you want to use your whole life policy for retirement, leave your children an inheritance, or pay off debt, such as tuition, later in life?

Also, consider other financial needs, such as children or other family members who may need continuing medical care. Since a whole life policy accrues a cash value, you can use it to provide necessary care to those who need it.

As with any life insurance, rates vary greatly by the person for whole and term life insurance. For example, your medical history and condition play a huge part in determining rates. As you age or have increased medical concerns, rates increase.

Life insurance rates by age vary. The younger and healthier you are when you buy either term or whole life insurance, the lower your rates. If you choose term life insurance, pick the most extended term available to keep your rates low for as long as possible.

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Term Life vs. Whole Life: Which one is better?

When choosing whole life vs. term life, there is no right or wrong answer. The best type of life insurance is the one that fits your specific needs.

If you need peace of mind that your mortgage gets paid off or your kids’ college gets paid, term life may be right for you. It’s also a great option for people who need coverage with low rates.

However, if you’re looking for life insurance that’s also an investment, consider whole life. Whole life is also a good option for people with special-needs children that need continuing care.

Do agents get life insurance commissions?

Yes, agents get commissions up to 100% the first year they sell a life insurance policy. After that, residual commissions drop to under 10% in the following years.

Case Studies: Term Life Insurance vs. Whole Life Insurance

Case Study 1: Sarah’s Financial Protection Plan

Sarah, a 35-year-old working professional, decided to purchase a term life insurance policy from Insurance Legit Company after much contemplation. She wanted a cost-effective coverage solution that would provide financial protection for her family in the event of her untimely demise.

By opting for a term life insurance policy, Sarah obtained coverage for a specific term, in this case, 20 years, with a death benefit of $500,000. She paid affordable premiums throughout the policy term, ensuring her family would receive the financial support they needed if she were to pass away during that period.

Case Study 2: Michael’s Lifelong Security

Michael, a 45-year-old entrepreneur, took a different approach and chose a whole life insurance policy from Insurance Legit Company. With a focus on long-term financial planning, he sought coverage that would provide not only a death benefit but also the potential to accumulate cash value over time.

Michael purchased a whole life insurance policy with lifelong coverage and a $1 million death benefit. A portion of his premiums went into a cash value account, which grew over time and could be accessed if necessary. This feature offered security for his loved ones and potential income for future financial goals, providing him with peace of mind.

Case Study 3: Lisa’s Flexibility and Investment Potential

Lisa, a 30-year-old single mother, faced a unique set of circumstances when deciding between term life insurance and whole life insurance. After careful consideration, she opted for a term life insurance policy from Insurance Legit Company due to its flexibility and affordability.

Given her current financial responsibilities, Lisa needed a policy that provided adequate coverage for her children until they reached adulthood. By selecting a 25-year term life insurance policy with a death benefit of $250,000, she ensured her children would be financially protected during their most vulnerable years.

Lisa also recognized the importance of investing in her future and wanted to explore other investment options. By choosing a term life insurance policy, she could allocate additional funds to investment accounts, allowing her to pursue her financial goals independently.

Case Study 4: John’s Estate Planning Strategy

John, a 50-year-old retiree with substantial assets, chose a whole life insurance policy from Insurance Legit Company as part of his estate planning strategy. With a $2 million death benefit, John aimed to provide liquidity for his beneficiaries, ensuring coverage for estate taxes and other financial obligations after his passing.

The cash value component of his policy also served as an additional asset within his estate, offering him the flexibility to access funds or make policy loans if necessary.

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Term vs. Whole Life Insurance: The Bottom Line

Both term and whole life insurance offer guaranteed death benefits and locked-in rates. However, each type of policy offers different benefits and drawbacks.

Term life insurance is the cheapest option, but it’s only good for a specific period. After your policy ends, you’ll have to find new coverage with increased rates.

Term life is a good option for people with mortgages, children, or other financial obligations who want to ensure those needs get met. Read more about the best term life insurance companies here.

On the other hand, whole life insurance provides coverage for your entire life if you make payments. Unfortunately, while whole life also has a cash value that you can borrow, it’s up to 15 times more expensive than term life. You can read about the best whole life insurance companies in this article.

Now that you know the difference between whole life insurance and term, you can decide which is right for you. You can get term life insurance quotes online. Compare multiple companies to find one with the coverage you need and the lowest rates.

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