If you’re shopping for life insurance, you’re most likely trying to decide between two main policy options: term life and whole life. Term life insurance is simple, easy to understand, and affordable, but only lasts until the end of its term, usually between 10 and 30 years. On the other hand, whole life insurance never expires, but it’s significantly more expensive and complex than term life.
Term life insurance is the best option for most people, since it provides a financial safety for their loved ones in the event of their death. But whole life insurance can be a good option for high-net-worth individuals, people with lifelong dependents, or people with complex financial planning needs.
Which of these two policy options is right for you will ultimately depend on your budget, coverage, and financial needs.
Term life vs. whole life at a glance
Features | Term life insurance | Whole life insurance |
Permanent coverage | No — maximum of 30 to 40 years | Yes |
Cost* ($500,000 coverage amount) | $26/month for a 20-year term | $440/month |
Guaranteed death benefit payout | Yes | Yes |
Guaranteed cash value | No | Yes |
Premium cost stays fixed | Yes, in most cases | Yes, in most cases |
Pays annual dividends | No | Yes, in some cases |
*Methodology: Average monthly term life insurance rate is for male and female non-smokers with a Preferred health rating obtaining a 20-year, $500,000 policy. Term life insurance averages are based on a composite of policies offered by Policygenius from Legal & General America, Brighthouse Financial, Corebridge Financial, Foresters Financial, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. Average monthly whole life insurance rate is calculated for non-smokers in a Preferred health classification, obtaining a whole life insurance policy paid up at age 100 from MassMutual. Rates may vary by insurer, term, coverage amount, health class, and state. Not all policies are available in all states. Rate illustration valid as of 01/01/2024.
What is term life insurance?
Term life is a type of life insurance that provides financial protection for your family over a fixed period of time, typically somewhere between 10 and 30 years.
The goal of many term life insurance policies is to provide coverage until retirement, since most people have fewer financial responsibilities at that age.
If you die during your term, your beneficiary will receive the death benefit — typically a lump sum of money — tax-free.
Pros and cons of term life insurance
Pros:
Affordable: Term life is cheaper than other options, so you can get coverage at a manageable price. A healthy 30-year-old, for example, can pay as little as $26 per month for a 20-year term life policy with a $500,000 payout. By comparison, a whole life policy with the same payout would cost the same person $451 per month.
Straightforward: Term life policies don’t come with any complex tax implications or restrictions.
Coverage only when you need it: Term life insurance provides financial protection during your highest-earning years, when you have multiple financial obligations, like paying a mortgage or putting your children through college.
Cons:
Expires: Term life doesn’t provide lifelong protection, since you may live longer than the term.
Has no cash value component: Term life cannot be used as an investment strategy while you’re living, because it has no monetary value until your death.
Common types of term life insurance
What is whole life insurance?
Whole life insurance is a type of permanent life insurance that provides coverage for your entire life, no matter when you die. Like all life insurance products, whole life pays a tax-free death benefit to your beneficiaries upon your death. But unlike term life, whole life has a cash value that earns interest at a fixed rate over time.
Pros and cons of whole life insurance
Pros:
No expiration date: Whole life insurance provides financial protection for the rest of your life.
Cash value: The cash value component included in whole life policies earns interest over time, and you can access that value before your death.
Cons:
Cost: Whole life insurance is significantly more expensive than term life. A healthy 30-year-old would pay $451 per month ($5,412 per year) for a whole life insurance policy with a $500,000 payout. By comparison, a 20-year term life policy with the same payout would cost the same person just $26 per month ($312 per year).
Investment returns: Whole life insurance offers lower returns than other investment options.
Common types of whole life insurance
The main differences between all whole life insurance types have to do with the amount of coverage you can get and their application process.
Standard whole life insurance is usually for a face amount between $100,000 and $3 million. When you apply, you’ll usually have to take a medical exam, and your overall health will impact how much your life insurance costs.
Final expense insurance sometimes called burial insurance — is designed to cover end-of-life costs, like funeral expenses or medical bills. The face value of the policy is usually between $5,000 and $40,000. You won’t have to take a medical exam to get this type of policy, but if you have a complex medical profile, you’ll likely pay a higher rate. Final expense policies are usually available to people who are at least 45 years old.
Simplified issue life insurance is a type of final expense insurance. A medical exam isn’t required to apply, but you do need to meet certain health criteria.
Guaranteed issue life insurance is also a type of final expense insurance, but you don’t need to meet any health criteria in order to apply. This type of life insurance is ideal for people who have multiple or complex health conditions, because virtually everyone is able to get approved.
The cost of term life vs. whole life insurance
Whole life is significantly more expensive than term life. A non-smoking 30-year-old will pay $26 per month ($312 per year) for a 20-year term life policy with a $500,000 death benefit payout, but $451 per month ($5,412 per year) for a whole life policy with the same payout.
The average monthly sample rates below will show you how other term life rates and whole life rates compare. Sample rates are for non-smokers who fall into the Preferred health class — usually reserved for people with one or two minor health conditions or within the insurance company’s preferred range for height-to-weight ratio — and who are seeking a life insurance policy with a duration of 20 years, 30 years, or whole life.
Term life vs. whole life rates for a $500,000 policy
Age | Gender | $500,000 20-year term life insurance policy | $500,000 30-year term life insurance policy | $500,000 whole life insurance policy |
20 | Female | $22.66 | $30.97 | $290.00 |
Male | $30.20 | $40.54 | $347.00 | |
30 | Female | $22.99 | $34.53 | $414.50 |
Male | $29.33 | $42.45 | $487.00 | |
40 | Female | $35.27 | $54.87 | $605.50 |
Male | $42.94 | $68.28 | $737.00 | |
50 | Female | $78.30 | $129.11 | $957.00 |
Male | $102.50 | $174.15 | $1,134.50 | |
60 | Female | $194.16 | N/A | $1,597.00 |
Male | $268.09 | N/A | $1,909.50 |
Methodology: Average monthly term life insurance rates are for male and female non-smokers with a Preferred health classification buying a 20-year or 30-year $500,000 term life insurance policy. Term life insurance averages are based on a composite of policies offered through Policygenius from Legal & General America, Brighthouse Financial, Corebridge Financial, Foresters Financial, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. Life insurance rates may vary by insurer, term, coverage amount, health class, and state. Average monthly whole life insurance rates are calculated for non-smokers in averaged Preferred Plus and Standard health classifications, obtaining a whole life insurance policy payable within 99 years from MassMutual. Individual rates will vary as specific circumstances will affect each customer's rate. Not all policies are available in all states. Rate illustration valid as of 09/01/2023.
How to choose between term and whole life insurance?
If you’re looking for a simple and affordable way to provide your loved ones with a financial safety net if you die, a term life policy may be a good option for you. But if you have long-term financial obligations like a lifelong dependent, or you’re a high-net-worth individual who’s already maximizing contributions to your 401(k) or Roth IRA and looking to diversify investments, a whole life policy may suit your needs better.
The best way to find the right type of policy for you is to work with an independent broker. At Policygenius, our experts are licensed in all 50 states and can walk you through the entire life insurance buying process while offering transparent, unbiased advice.
Alternatives to term and whole life insurance
Term life and whole life are two of the most popular types of life insurance policies because they meet the most common coverage needs of most people. But if you have other life insurance plans, you might want to consider different options.
The following types of policies can be an alternative to term life or whole life. Working with an independent broker on your life insurance application is the best way to find the right coverage for you at the right price.
Guaranteed universal life insurance is a type of permanent life insurance that comes with fixed premiums, minimal cash value, and a guaranteed death benefit.
Indexed universal life insurance (IUL) comes with a cash value that earns interest and lets you adjust your death benefit or use your cash value to pay your premiums — similar to other universal life insurance options. The interest rate is based on an index chosen by the policyholder.
Variable life insurance is a type of permanent coverage that allows you to invest the money from your cash value in various funds offered by the insurance company, including mutual funds.
Variable universal life insurance (VUL) is a type of permanent coverage that comes with flexible premiums, an adjustable death benefit, and multiple ways to invest your cash value.
Joint life insurance is a policy that covers two people. Most commonly, the joint policyholders are married or domestic partners, but they can also be business partners. In most cases, it’s better for each individual to have their own personal policy.
→ Learn more about the difference between term vs. permanent life insurance
Frequently asked questions
What’s the difference between term life and whole life?
Term life offers affordable coverage for a set period of time, usually 10 years to 30 years. Whole life is a lot costlier because it lasts your entire life and has an investment-like component.
What happens to term life insurance at the end of the term?
Term life insurance policies expire at the end of the term. If you don’t need to keep coverage, you can let your policy expire. If you still need coverage, however, you can convert it into a permanent policy, renew your policy at a higher premium, or apply for a new policy.
Can you cash out a term life insurance policy?
No, you can’t cash out a term life insurance policy because this kind of policy doesn’t have a cash value.
Can you cash out a whole life insurance policy?
Yes, you can cash out a whole life insurance policy. Every whole life policy has a cash surrender value, which is the cash value amount minus fees and penalties. Penalties for cashing out apply during the surrender period, which can last a decade or more. Interest earnings are also taxed as income if you cash out.
Can you convert a term life insurance policy to whole life?
Yes, many term life insurance policies come with the option to convert to whole life — or another permanent life insurance product — before the end of your term.
