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Term vs. whole life insurance: What’s the difference?

Term life insurance is relatively cheap but only lasts for a set period of time. Whole life insurance doesn’t expire, but costs much more than term life. The best type of policy for you depends on your financial goals and your budget.

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By

Katherine MurbachEditor & Licensed Life Insurance AgentKatherine Murbach is an editor and a former licensed life insurance agent at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.&Tory CrowleyAssociate Editor & Licensed Life Insurance AgentTory Crowley is an associate editor and a former licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Edited by

Antonio Ruiz-CamachoAntonio Ruiz-CamachoAssociate Content DirectorAntonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.
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Reviewed by

Patrick Hanzel, CFP®Patrick Hanzel, CFP®Certified Financial Planner™ & Advanced Planning ManagerPatrick Hanzel, CFP®, is a certified financial planner and advanced planning manager at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.

Updated|2 min read

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Key takeaways

  • Term life insurance is affordable and lasts for a set number of years — usually 10 to 30. It’s best for most people who want to provide a financial safety net for their family when they die prematurely.

  • Whole life insurance is significantly more expensive, but never expires and comes with an investment-like cash value account that you can use when you’re alive. It can be a good option for high-net-worth individuals, people with lifelong dependents, or people with complex financial planning needs.

  • The type of life insurance that’s right for you will ultimately depend on your budget and your coverage needs.

Term life insurance and whole life insurance are two of main and most popular types of life insurance. Knowing the differences between them will work to your advantage and ensure that you’re getting the life insurance policy that best meets your financial needs.

Term life vs. whole life at a glance

Features

Term life insurance

Whole life insurance

Permanent coverage

No — maximum of 40 years

Yes

Cost* ($500,000 coverage amount)

$26/month for a 20-year term

$451/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

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*Methodology: Average monthly term life insurance rate is for male and female non-smokers with a Preferred health classification 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, and the Policygenius Life Insurance Price Index, which uses real-time data from leading life insurance companies to determine pricing trends. 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 offered by Policygenius 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 04/01/2024.

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. 

According to recent data, 40% of insurance policies purchased in 2022 were term life insurance policies. [1] Most people get term life insurance to protect their income, so they set the term up to last until they retire. 

If you die during your term, your beneficiary will receive the payout from your policy — commonly known as death benefit — which is typically paid out as a tax-free lump sum. [2]

Pros & cons of term life insurance

Pros

Cons

Affordable: Term life is cheaper than other options.

Straightforward: Policies don’t come with any complex tax implications or restrictions.

Coverage only when you need it: It covers you while you have important financial responsibilities, like paying a mortgage or raising children.

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 loved ones 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. You can use this cash value account when you’re alive to borrow from and in some cases, to pay your premiums.

Pros & cons of whole life insurance

Pros

Cons

No expiration date: It provides financial protection for the rest of your life.

Cash value: It earns interest at a set rate over time, and you can access that money while you’re alive.

Cost: Whole life insurance is significantly more expensive than term life.

Investment returns: Whole life insurance offers lower returns than other investment options.

Term life vs. whole life infographic

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 can expect to 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. In other words, you can expect to pay up to 17 times more for a whole life policy than you would for a term life policy with the same coverage amount.

The monthly rates below will show you how other term life rates and whole life rates compare. Sample rates are for non-smokers 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

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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 04/01/2024.

Cost comparison between 20-year term, 30-year term, and whole life insurance policies offered through Policygenius.

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 you’re trying to minimize your estate taxes after you die. Whole life insurance is also good for people who need lifelong coverage for dependents, like an adult child with disabilities or an aging parent.

Forty-one percent of Americans say they don’t have enough life insurance coverage. [3] The best way to get the coverage you need and 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.

Learn more about the difference between term and permanent life insurance

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Alternatives to term & 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 differences between whole and indexed universal life insurance

Frequently asked questions

What’s the difference between term life & whole life insurance?

Term life offers cheaper coverage for a set period of time, usually 10 years to 30 years. Whole life is significantly more expensive because it lasts for the rest of your life and has a cash value account you can benefit from while you’re alive.

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 whole life insurance policy?

Yes, you can cash out a whole life insurance policy, which means you’ll cancel the policy and lose your coverage, but keep any accumulated cash value minus taxes and fees.

Can you convert a term life insurance policy to whole life?

Yes, most 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.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of oureditorial standards.

  1. Insurance Information Institute

    . "

    Facts + Statistics: Life insurance

    ." Accessed March 21, 2024.

  2. IRS

    . "

    Life Insurance & Disability Insurance Proceeds

    ." Accessed March 21, 2024.

  3. LIMRA

    . "

    New Study Shows Interest in Life Insurance at All-Time High in 2023

    ." Accessed March 21, 2024.

Authors

Katherine Murbach is an editor and a former licensed life insurance agent at Policygenius. Previously, she wrote about life and disability insurance for 1752 Financial, and advised over 1,500 clients on their life insurance policies as a sales associate.

Tory Crowley is an associate editor and a former licensed insurance agent at Policygenius. Previously, she worked directly with clients at Policygenius, advising nearly 3,000 of them on life insurance options. She has also worked at the Daily News and various nonprofit organizations.

Editor

Antonio helps lead our life insurance and disability insurance editorial team at Policygenius. Previously, he was a senior director of content at Bankrate and CreditCards.com, as well as a principal writer covering personal finance at CNET.

Expert reviewer

Patrick Hanzel, CFP®, is a certified financial planner and advanced planning manager at Policygenius. His expertise has been featured at Lifehacker, Consumer Affairs, Authority Magazine, Thrive Global, and Fatherly.

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