Term vs Whole Life Insurance: A Simple Comparison


Did you know that almost 37% of Americans do not have life insurance? If you are currently looking to not be part of this statistic but are confused by the different life insurance policy options, we are here to help. We will go over term vs whole life insurance to help you choose the best option for your needs.

Keep reading to learn more about their differences.

Term  Life Insurance

If you choose a term life insurance policy you will choose the time period you want to be covered for. This can vary based on the company but it can be a 10, 15, 20, or even a 30-year policy. With most policies, your premium will not change for the length of the term you choose.

Term life insurance will cover you in case you die within the term that you are insured. If you were to pass away, those you list as beneficiaries will receive the payout of your policy.

You want to choose an amount of coverage that will help your family if you can no longer provide for them. If you are currently the main or sole provider you do not want to leave your loved ones with nothing to fend for themselves. If you have children this is especially important because you want to make sure they are taken care of.

Make sure that you add up everything you currently pay monthly and multiply that for the year to help you know how much coverage you need. Also, make sure that you add extra for expenses such as funeral arrangements, etc.

All of the top life insurance companies found on sites like Simplelifeinsure.com offer term life insurance policies, making it easy to find and compare rates.


We want to highlight the main features of a term policy to make it easier to compare:

  • Only provides death benefits
  • It’s the easiest and most affordable life insurance
  • Will only pay the benefits you choose if you die during the term of your policy
  • It becomes more expensive as you age (especially after 50)
  • You purchase it for a specific amount of time (known as a term)
  • Can often be converted to a whole life policy
  • Can be used as a temporary additional coverage if you already have a whole life policy

Whole  Life Insurance

This life insurance policy will give you lifelong coverage and it includes an investment part called the policy’s cash value. This is the main difference between whole and life insurance.

The cash value will slowly grow throughout the years and it will be tax-deferred. Anything you earn from the cash value you will not have to pay taxes on those gains. You will also have the option to borrow money against your account if you find yourself in a financial bind in the future.

You can also surrender the entire policy in exchange for the cash. Please keep in mind that if you do not repay the policy loan you borrow along with its interest you are going to end up reducing your death benefit amount. If you choose to surrender the policy then you won’t have coverage at all.

A whole term policy can be a bit more complicated because of the growing cash value but it has a few things that are straightforward. The death benefit is guaranteed. This means that you won’t have to worry about your loved ones jumping through hoops when you pass away.

The premium will always remain the same for as long as you are alive. This will give you peace of mind that even as inflation occurs in the future and rates are higher you will be locked into the rate that you started paying from Day 1.

Something else that is straightforward is that the cash value account will always grow at a guaranteed rate. You will know how much you will accumulate in 5, 10, 15+ years.


Here are a few of the main features of opting for a whole life policy:

  • Whole life covers you for life
  • More than likely you will need to have a health exam to qualify
  • It can be purchased without a medical exam but it will cost more
  • Will provide death benefits and equity that will build during the life of the policy
  • Takes around 12-15 or even 20 years to build up a decent amount of cash value
  • The cash value or equity will depend on how much the return on investment is worth
  • More expensive than term life initially but might save you more money over the life of the policy once your cash value begins to accumulate

Cost Comparison

Between term and whole life insurance, term life is the least expensive. This is because the policy is temporary and there is no cash value. Everything you pay does not add up it will just benefit the company because your family will not receive any benefit payouts if you live past the end of the term.

Whole life insurance policies are more expensive because the coverage will last for your entire lifetime. Another reason it costs more is that it has a cash value that you can borrow in the future if the need ever arises. Plus the cash value has a guaranteed rate of investment return.

Which One to Choose?

The simple answer is that this depends on your needs and your budget. Term life insurance is typically enough for most families that want to make sure that their loved ones are covered in case anything happens. Whole life insurance can come in handy in certain situations because of the extras it comes with.

Here are a few things to take into consideration:

Term Life Insurance

A few things to consider about term life is that you only need life insurance to replace your income over a certain period of time. Take into consideration the years that you are raising your children (calculate when they will be on their own). Also take into consideration the amount to pay off your mortgage loan, credit card debts, etc.

If you want the most affordable coverage then a term life policy might be the best option for you.

Keep in mind that if you would prefer to have a whole life policy but currently can’t afford it you might be able to convert a term policy to a permanent one in the future. Ask the term life insurance company you are considering if this is an option and if it is, ask when the deadline would be.

Whole Life Insurance 

This is the policy you want to opt for if you want to provide any money to your heirs to pay for estate taxes. There are states that will charge an additional estate or inheritance tax to your beneficiaries and you want to make sure you leave enough for your loved ones to afford those taxes.

If you want to spend your retirement savings but still leave an inheritance for funeral costs then a whole term policy is your answer.

If you have a dependent that will be lifelong such as a child with special needs you can look for a whole term policy that will fund a special needs trust. This will give you peace of mind that your child will be provided for by the person you choose with this fund. Make sure that you consult with a financial advisor and an attorney to set up a trust for your special needs dependent.

Another benefit to a whole life policy is to help you make inheritances equal. For example, if you are planning on leaving one of your kids your business or property, you can use whole life insurance to compensate your other children financially.

Can You Buy Both?

The answer is – YES. You can buy both types of policies if you choose. If you already have a whole life policy but want to have additional short-term coverage then you can buy a term policy for say 10-15 years.

If you currently have a term policy but want to invest in long-term planning such as retirement then you can also buy a whole life policy. Or you might want to make sure your estate is handled properly then you can always take out a whole life policy to make sure you are covered.

Converting From Term to Whole Life

As we briefly mentioned before with some companies you might have the option to convert your term life policy to a whole life policy. There are some instances where converting is a good idea.

If you want to extend your life insurance coverage but you no longer have the option to go with a term insurance policy due to your age or a term policy has become way too expensive then converting to a whole life policy might be best.

Another time converting from term to whole life makes sense is if your term life policy is about to expire and you are in your 50s or 60s. If you are setting up a trust in your will then converting to whole life would be a smart move.

If you find that you need or want a non-taxable investment option then converting to a whole life policy is the way to go. If you have an estate and are concerned about the estate taxes then a whole life policy will give you peace of mind.

Converting from a term life policy to a whole life policy is a great way to continue your life insurance and build cash value on top of it. This is money that you won’t pay taxes on and you can borrow if the need ever arises.

Should Young People Have Life Insurance?

Yes, even young healthy people should take out a life insurance policy. The great thing is that the younger you are the cheaper your policy will be and you can have peace of mind for a long time with an affordable locked-in rate.

You might be in your 20s or early 30s and life insurance might be the last thing on your mind as you are trying to get through college or getting by at work, but this is something you do not want to ignore. It is better to be prepared in case of something than to not be prepared and leave your loved ones struggling.

If you have private student loans with a cosigner you will definitely want to make sure that you have at least a term life policy to make sure that they receive money to pay off the loan in case you pass away. If you do not do this they will be responsible for this debt because they co-signed the loan.

If you have children you definitely do not want to go without a life insurance policy. The last thing you want is for your kids to suffer financially because you failed to prepare. With a term policy, you will not have to go through an insurance broker NJ making it easier to not end up paying for a ton of coverages you don’t really need.

Term vs Whole Life Insurance: Which Will You Choose?

Now that you know more about term vs whole life insurance, you can make an informed decision when choosing life insurance. Make sure that you take the time to do your research and choose a reputable company with a good track record. Before deciding on your coverage amount you want to make sure that it is enough to help your loved ones during a difficult time.

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