If you’re shopping for life insurance, you’re most likely trying to decide between two main policy options: term life and whole life. The main differences between the two come down to the cost and length of coverage.
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, Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, 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, which is most often paid out as a tax-free lump sum.
Pros & 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 around $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 covers you while you have important financial responsibilities, like paying a mortgage or raising children.
Cons:
Expires: Term life doesn’t provide lifelong protection, since you may live longer than the term.
Has no cash value component: Term life can’t be used as an investment strategy or to withdraw money while you’re still alive.
What is whole life insurance?
Whole life insurance is a type of permanent life insurance that doesn’t expire. Like all life insurance products, whole life policies guarantee a death benefit to your beneficiaries upon your death, which is most often tax-free. But unlike term life, whole life has a cash value feature 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 earns interest at a set rate over time, and you can access that money while you’re alive.
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
What is the cost of term life vs. whole life insurance?
Whole life is significantly more expensive than term life. A 30-year-old who doesn’t smoke will pay $26 per month ($312 per year) for a 20-year term life policy with a $500,000 payout, but $451 per month ($5,412 per year) for a whole life policy with the same payout.
The monthly 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 with an average height-to-weight ratio.
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 | $22.65 | $30.97 | $290.00 |
Male | $30.20 | $40.53 | $347.00 | |
30 | Female | $22.98 | $34.52 | $414.50 |
Male | $29.32 | $42.45 | $487.00 | |
40 | Female | $35.27 | $54.87 | $605.50 |
Male | $42.94 | $68.28 | $737.00 | |
50 | Female | $78.29 | $129.12 | $957.00 |
Male | $102.50 | $174.15 | $1,134.50 | |
60 | Female | $194.16 | N/A | $1,597.00 |
Male | $268.04 | 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 Brighthouse Financial, Corebridge Financial, Foresters Financial, Legal & General America, Lincoln Financial, Mutual of Omaha, Pacific Life, Protective, Prudential, Symetra, and Transamerica. 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 fully paid up at age 100 offered through 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.
How to choose between term life & whole life insurance
Your reasons for buying life insurance coverage and your budget will help determine which type of policy is best for you.
You might need term life insurance if you’re looking for an affordable way to financially protect your family if you die. If your main concern is your loved ones struggling to pay expenses related to housing, childcare, or education without you around, term life insurance can fulfill that need.
You might need whole life insurance if you have a high net worth and you’re already maximizing other investment accounts. Or, if you need lifelong coverage for dependents, whole life may suit your needs.
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 unique circumstances, you might want to consider different options, like the ones below.
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.
→ Learn more about the difference between term vs. permanent life insurance
Frequently asked questions
What’s the difference between term life and whole life insurance?
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.
