Whole vs. Term Life Insurance: What's the Better Option for You?

Life changes quickly, especially if you’re just now starting your adult chapter. Perhaps you’ve recently tied the knot or a little mini-you is on the way (congrats!). In either case, your financial situation is likely to change drastically over the next couple of years, never mind decades. So, too, will your insurance needs. 

You may be wondering what the difference is between a whole life vs term life policy. Before we get into the nitty-gritty of which one might work best for you, let’s look at what term and whole life insurance coverage have to offer. 

• There are benefits and drawbacks to each. 
• Term life insurance is typically more affordable, while whole life doesn’t expire after a set period of years – but it’s more expensive. 
• Both options have merit – and the choice depends on what you value for your loved ones. 

Article Highlights

• Term insurance v. Whole Features
• Term insurance v. Whole Cost Comparison
• Choosing Term or Whole
• Other Life Insurance Options
  

High-Level Differences Between Term and Whole Life Insurance

The two basic types of life insurance are term and whole, which differ in length of coverage. Term  life insurance lasts for as long as the chosen term length is on your policy (usually between 10-30 years). Whole life lasts, you guessed it, your whole life, and can offer a guaranteed payout upon your death. 

Term Life Insurance – This is designed to provide coverage at a time when you’re most financially vulnerable, like when you’re just starting a family or taking on your first mortgage. And because it expires at the end of your term, it typically costs significantly less than a whole life insurance policy. 

Whole Life Insurance – Because whole life insurance is in force for as long as you’re alive (and as long as you pay your premiums), your beneficiary will always receive the death benefit, no matter how old the policy. This generally means higher premiums for most applicants.

What Is Term Life Insurance? 

A term life policy covers a specific time period and is intended to provide death benefits in the event of premature death. While you must keep up with monthly premium payments, it only retains value if you pass away during the term.

The Benefits of Term Life Insurance

You know yourself best. Term life insurance coverage can be a great option, especially if you have a tight budget. With a term policy, you’ll enjoy the benefits of: 

• Choosing your term length. Perhaps 30-years makes sense if you’ve taken out a mortgage. Or a 20-year term can suit someone who just had a baby. 
• Getting more affordable rates that comfortably fit into your monthly budget. 
• Some degree of financial resiliency for your beneficiaries if you pass away during your term. 
• Oftentimes, a fast and simple application process. You might even get to skip the medical exam, depending on the carrier. 
  

Drawbacks of Term Life Insurance 

While the lower price and flexible terms can make term enticing, there are a few reasons to think twice about your choice. 

• The life of your policy expires at the end of the term. You can’t always add on coverage, but often must reapply, with new rates. 
• If you do outlive the term, the money you’ve paid for a number of years is generally gone. 
• You can sometimes add a “return of premium” rider to your policy to get part or all of your premium payments returned back to you. However, these policies are more expensive. 
  

What happens to term life insurance at the end of the term? 

At the end of a term, a policy simply expires. Policy holders sometimes have the chance to re-up their coverage, but not always. Ideally your major expenses are paid off, the kids are on their own, and the financial peace of mind you get from insurance is no longer necessary.

What Is Whole Life Insurance? 

Whole life insurance is exactly what it sounds like: it’s insurance that lasts for your whole life (except it’s actually more complicated than that). It’s often called permanent life insurance, for obvious reasons. 

• You get lifelong coverage, which provides a payout to your beneficiaries on your eventual death. 
• Your policy may accrue cash value based on a fixed interest rate – and this is generally tax-free money. 
• You can often borrow against the cash value for major or unexpected life expenses. 
  

Benefits of Whole Life Insurance 

Outside the obvious appeal of the cash value benefit, a whole life policy is a great choice for individuals looking for a guarantee, and want the financial protection that comes from knowing you have a policy to last your entire life. 

• There’s no term. It is permanent coverage as long as you're making payments. 
• Just like term life, the death benefit is generally  tax-free or tax deferred.
• Premiums grow tax-deferred cash value from which you can withdraw or borrow. 
• Your beneficiaries get a guaranteed death benefit as long as you make your required payments.
• A portion of premiums paid build cash value which grows over time, and that cash value is also guaranteed money.
  

Drawbacks of Whole Life Insurance 

It should be clear by now that for many people seeking life insurance, the appeal of whole life can be tempered by the cost. 

• You’ve got to pay more in order to get more benefits, so you’ll pay higher premiums. 
• If the policy is surrendered there can be fees to cancel the coverage.
• Using the cash value can reduce the death benefit (if loans are not paid back), subject you to taxation, or result in the surrender of the policy. 
  

Comparing Term vs. Whole Life Insurance Policy Coverage 

Let’s look at what term and whole life insurance offer side-by-side for a clearer picture. There are trade-offs with selecting either, but once you’ve decided what’s most important you can begin to balance some of those tradeoffs.

Comparing Cost of Term and Whole Life Insurance 

A whole life insurance policy generally costs more than a comparable amount of coverage from a term policy. But if you start adding riders and other policy features to a term life insurance policy, your life insurance premiums can still increase significantly. 

Term life insurance policies are a good option if you only need life insurance to replace your income over a certain period, such as the years you’re raising children or paying off your mortgage. It’s going to be your most affordable coverage. 

With whole life or entire life insurance costs being out of reach for some, choosing term is a way for even those with little money available for premiums to manage some level of coverage for their family. And if your circumstances change, some term policies offer the option to convert to a permanent life insurance policy. 

But whole life can make a lot of sense for some people who simply can’t imagine all of their premium payments being sunk costs. Others want a low-risk means of passing on tax-free wealth to their beneficiaries. (We strongly recommend consulting a financial advisor on how an insurance policy might fit into your financial plan.) 

If your expenses or debts aren’t short term, permanent life insurance can make sense. A family with a dependent child may choose whole life to help fund their care. 

And of course, it’s possible that you just want to ensure your final expenses aren’t a burden on your family, but you want to blow all your own hard-earned money sipping piña coladas on a remote beach before you go. 

Life Insurance FAQs

What does life insurance cover? 

Life insurance can help cover any financial needs encountered by those who may have depended on your income should you pass away. At a minimum, it can help with funeral costs and final expenses. 

How much does life insurance generally cost? 

Term policies can be as little as $1/day, depending on several factors including coverage amount, term length and your answers to health and lifestyle questions. Whole life is generally more expensive.

Can I convert a term life insurance policy into whole life insurance? 

Some term life policies allow policyholders to convert their policy into a form of permanent life insurance, often without further medical exams. You should ask this of your insurer before purchasing a policy. 

Which one is ultimately better? 

There is no “better” type of policy, only a “better-for-you” policy based on your family’s unique needs. Not for nothing, but there’s also no rule that says you can’t have both. 

Get Your Free Life Insurance Quote 

You can get a term life insurance quote in seconds and apply for a term life insurance policy with Lantern. Most get a decision in just minutes. It’s entirely online if that’s what you’re into. If not, we have Customer Care Advisors standing by to help. It’s entirely up to you. 

There’s no better day than today to start looking at your insurance coverage options and get a fast, free quote on convenient term life insurance policies with Lantern. Taking the first step might provide you with some peace of mind. And applying for coverage might provide your family with financial protection in the future.