Term vs. whole life insurance: How to make the right choice

Term life insurance is more straightforward and affordable than whole life insurance, but it will expire.

Headshot of Policygenius editor Nupur GambhirAmanda Shih author photo

By

Nupur Gambhir

Nupur Gambhir

Life Insurance Expert

Nupur Gambhir is an insurance editor at Policygenius and licensed Life, Health, and Disability agent in New York.

&

Amanda Shih

Amanda Shih

Editor & Licensed Insurance Expert

Amanda Shih is an insurance editor and licensed Life, Health, and Disability agent at Policygenius in New York City. Her work has appeared in Slate, Lifehacker, Little Spoon, and J.D. Power.

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Expert reviewed

This article has been reviewed by a licensed Policygenius expert to ensure that sources, statistics, and claims meet our standard for accurate and unbiased advice.

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by

Patrick Hanzel, CFP®

Patrick Hanzel, CFP®

CERTIFIED FINANCIAL PLANNER™ & Advanced Planning Team Lead

Patrick Hanzel is a CERTIFIED FINANCIAL PLANNER™ and Advanced Planning Team Lead at Policygenius.

Updated November 16, 2021|2 min read

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Both term life and whole life have their benefits and drawbacks. Term life insurance is affordable and straightforward but doesn’t last for life, while whole life insurance doesn't expire, but is more expensive

Term life insurance is right for most people, since they won’t need coverage in their retirement years, but that doesn't mean it's right for everyone. Whole life insurance is best for people with lifelong dependents or more complex financial planning needs. Here’s how to decide which type of life insurance is best for your family.

Key Takeaways

  • Term life insurance is the right choice for most shoppers

  • Whole life insurance is five to 15 times more expensive than term life

  • Whole life has a cash value component that acts similarly to a savings account, but most people don’t need it

Term life vs. whole life: Coverage comparison

Length of coverage and premium costs are the two main differences between term life insurance and whole life insurance. Below is a quick overview of common policy differences across Policygenius's best companies, including a cost comparison for males age 25 to 35.

Policy featuresTerm life insuranceWhole life insurance
Duration10-30 yearsLife
Cost$27-31/month$350-520/month
Guaranteed death benefitYesYes
Guaranteed cash valueNoYes
How cash value growsN/AEarns interest at a fixed rate
PremiumsLevelLevel
RisksNo cash value savings optionLow interest rates and high premiums

Methodology: Estimated term and whole life insurance quotes based on policies offered by Policygenius in November 2021 from our 10 partner life insurance companies: AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Protective, Prudential, SBLI, and Transamerica. Rates are calculated based on a $500,000, 20-year term life insurance policy and $500,000 whole life insurance policy for male non-smokers age 25 to 35 in a Preferred health classification.

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What is term life insurance?

With term life insurance, you pay premiums regularly for a set period. If you die while the policy is in effect, your designated beneficiaries get a death benefit payout.

After 20-30 years, many people have fewer financial obligations and they no longer need life insurance. As long as you don’t need coverage into old age, a term policy is simple and cost-effective.

What is whole life insurance?

Whole life insurance is a type of permanent life insurance that stays active for your entire life. Whole life is more complicated than term life because of its cash value, which is a savings-like component.

The policy's cash value grows over time at a rate set by your insurer. You can use the cash value to take out loans or use it for retirement when the account matures. Certain terms, conditions, and additional fees apply.

Term life vs. whole life: Cost comparison

Both term life and whole life premiums stay the same for the duration of your policy. Because coverage lasts longer and comes with a cash value, whole life insurance is five to 15 times more expensive than a comparable term life policy.

The charts below compare the monthly cost of a $250,000, 20-year term policy and a $250,000 whole life policy for a male non-smoker at different ages.

AgeTerm lifeWhole life
25$17.40$351.00
35$19.20$517.00
45$36.01$827.00
55$86.79$1,351.00

Note that a whole life policy costs as much as 27 times more than term life in the example above for the same death benefit. Visualized another way, the difference in cost is even clearer:

One of the biggest differences between term and whole life insurance is the cost. Whole life insurance costs six to ten times more compared to term life insurance, even for significantly less coverage.

Methodology: Quotes based on policies for male non-smokers in a Preferred health classification, offered by Policygenius in October 2021 from our 10 partner life insurance companies: AIG, Banner, Brighthouse, Lincoln, Mutual of Omaha, Pacific Life, Protective, Prudential, SBLI, and Transamerica.

Term life vs. whole life: Pros and cons

For most people, the negatives of whole life insurance outweigh the positives. But a whole life policy may be a better fit if you need lifetime coverage or another way to invest outside traditional financial services.

Term life insurance

Pros

  • Affordable premiums

  • Can cancel the policy without any penalty

  • No hidden fees, exclusions, or investment risk

Cons

  • Coverage expires, so you have to buy a new policy if you still need insurance later

Whole life insurance

Pros

  • Can be useful for estate planning

  • Cash value acts as a forced savings vehicle

  • Coverage doesn’t expire

Cons

  • Higher premiums are difficult to afford long-term

  • Other investments offer higher interest rates

  • Penalties apply if you cancel coverage

Term life vs. whole life: Make a choice

Whether you need a term life or whole life policy depends on your financial needs. 

  • Term life is right for you if: You want an affordable way to leave a death benefit behind to financially support your loved ones and you expect to self-insure in the future

  • Whole life is right for you if: Your estate will be subject to an estate tax, you want to build cash value, or you have long-term dependents 

Term life insurance is the right life insurance policy in most cases because it offers the same amount of death benefit as whole life insurance for a fraction of the price. If you’re still unsure, a licensed life insurance expert or financial planner can help you compare the best companies and decide which type of policy is right for you.

Term vs. whole life insurance FAQs

What’s the difference between term life and whole life?

Term life offers affordable coverage for a set period, usually 10-30 years. Whole life is a lot costlier because it lasts your entire life and has an investment-like component.

Is term life or whole life better?

Term life is the best option for more people due to its affordability. However, whole life is a good option for people who have a high net worth or long-term dependents.

What are the pros and cons of a term life insurance plan?

Term life insurance is cheaper and simpler to manage, but if you need insurance after your coverage expires, a policy is costly.

What are the advantages and disadvantages of whole life insurance?

Whole life provides permanent coverage, but the policy isn’t cost-effective for most people and the cash value earns low interest.

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