Term vs. whole life: how to choose

When it comes to term vs. whole life, both pay a benefit to your family if you pass away while covered. But they work in very different ways.

Knowing the basics can help you ask the right questions. Here's how each one works.

How term life works

Term life covers you for a set period, such as 10 or 20 years. If you pass away during that time, your family gets the death benefit.

If you outlive the term, the coverage ends and there's usually no payout. Most term policies have no cash value.

Why people choose term:

• It usually gives the most coverage for the lowest starting premium.
• It fits needs that end, like a mortgage or raising kids.
• It's simple to understand.

The trade-off is that it doesn't last forever. Renewing a term policy usually means higher premiums, and buying new coverage later depends on your age and health at that time.

How whole life works

Whole life is a type of permanent insurance. It's designed to cover you for your whole life, as long as you keep paying premiums.

The premium is based on your age when you buy and generally doesn't go up. The policy also builds cash value over time.

That cash value grows on a tax-advantaged basis. How it's taxed in the end depends on how the policy is set up and kept in force, and our guide to whole life cash value goes deeper.

Why people choose whole life:

• Coverage doesn't end at a set age, as long as the policy stays in force.
• Premiums are generally set to stay level.
• You may be able to borrow against the cash value.

Term vs. whole life: the trade-offs to weigh

Whole life costs more than term at the start. That higher cost can make it harder to buy as much coverage as your family needs.

Cash value may also be low in the early years. Here are some other things to know:

• Unpaid policy loans and interest lower the death benefit.
• If you surrender the policy, a surrender charge may be taken from the cash value.
• If premiums go unpaid past the grace period, the policy can lapse.

Term has its own trade-off. Over a long stretch, renewing term again and again can end up costing more than whole life.

Questions to ask yourself

There's no single right answer. These questions can help you sort out what matters most:

• How long will my family need this coverage?
• How much coverage do I need, and what fits my budget?
• Do I want coverage that lasts my whole life?
• Am I comfortable paying more for features like cash value?

Some families pair term and cash value coverage to fit different needs. You can compare both on our life insurance page.

Common questions

Can I switch from term to whole life later?

Some term policies are convertible, which may let you change to permanent coverage. Premiums for the new policy are usually higher.

Is whole life worth the higher cost?

It depends on your goals, budget, and how long you need coverage. Our post on whether whole life is worth it walks through who it may fit.

Bottom line

Term life gives more coverage for less money over a set time. Whole life lasts longer and builds cash value, but costs more and has more moving parts.

The best fit depends on your goals, your budget, and how long you need coverage. Our team is happy to walk through both options with you.

Have questions about your situation? Book a complimentary call with our team.

This article is for general education only and isn't financial, tax or legal advice. Product features vary by carrier and state. Talk with a licensed professional about your situation.