Term Life vs Whole Life: The Ultimate Life Insurance Comparison Guide




Buying life insurance or considering life insurance options, but aren’t sure what’s the right fit? What makes the most sense for your financial situation, term or whole life insurance? 

Come explore the difference between whole and term life insurance in the ultimate life insurance comparison guide, so you can determine which life insurance is the best for you so your family is protected in the future.

Did you know that the average funeral home can cost $11,000 or more? Before even beginning to look at life insurance rates and life insurance policies, it’s important to understand what it actually is.

sun shining on park bench

What Is Life Insurance?

Life insurance is a contract between the policyholder and insurer. The insurer provides payment of a death benefit to your named beneficiaries when you die. Your beneficiaries will receive these payments as long as you’ve paid the necessary premiums. 

Are the Policyholder and Insured the Same Person?

While the insured and policyholder are normally the same person, they can sometimes be different. For example, a business can buy insurance on an employee, such as a COO. Sometimes an insured can sell their policy for cash.

How Life Insurance Works

There are 3 components to life insurance: premiums, death benefit, and cash value.


The premium is the money you (the policyholder) pays for the insurance. If you’ve paid the premium, then when you die, the insurer will pay the death benefit to your beneficiaries. 

Premiums are calculated based on how likely it is that the insurer will have to pay the death benefit. To determine this they’ll take a look at your life expectancy, which is determined by your gender, age, medical history, any high-risk hobbies, and dangerous jobs. If your death benefit is higher, then your premium will be higher as well. The same goes for if you’re at higher risk or for life insurance policies that receive the cash value. 

Death Benefit

The death benefit is also known as the face value. This is the amount your insurance company will pay your beneficiaries in your policy when you die. You’ll choose your desired death benefit based on your beneficiaries’ future needs. The insurance company will then decide if your proposed coverage qualifies based on your risk level.

Cash Value

Cash value is a savings account for the policyholder that you can use during your lifetime. The cash builds as tax-deferred. Certain policies can be restricted on withdrawals determined by how the money is used. Any outstanding loans that are against the cash value will decrease the death benefit.

girl holding money

What Is The Difference Between Whole Life And Term Life Insurance?

What Is Term Life Insurance?

Term life insurance provides coverage for a determined amount of time, which can range from 1-30 years. If you die during your coverage period, then the insurance company will pay a death benefit to your beneficiaries on your policy. If the policy ends and you’re still alive, then the insurance company doesn’t pay you anything and your coverage stops.

How Does Term Life Insurance Work?

The features of term life insurance are:

  • You can use it as temporary additional coverage with a life insurance policy that’s permanent.
  • You can change it to whole life insurance.
  • It provides death benefits.
  • It’s an affordable option for life insurance.
  • It has a specific time frame. 
  • As you get older, the rate increases.
  • You’ll need to renew it for it to go past the term length.

What Is Whole Life Insurance? 

Whole life insurance provides coverage for a lifetime. It includes an investment which is your policy’s cash value. You won’t pay taxes on your cash value while it builds. You have the option to end the whole life insurance policy for cash or borrow money against it, but if the policy loans aren’t repaid with interest, then your death benefit will be reduced. If you end the policy, then you’ll end coverage.

How Does Whole Life Insurance Work?

The features of whole life insurance are:

  • You normally have to qualify with a health exam.
  • It can be great for estate planning.
  • It entails coverage for life.
  • It gives death benefits and cash value. 
  • The cash value of the policy builds.
  • It is more expensive than term life, but can save you money over time

girl reviewing insurance policy

Which Is Better, Term or Whole Life Insurance?

If you have a lifelong dependent, then whole life insurance is a great option to protect your loved one when you’re gone. To set up a trust just speak with a financial advisor or attorney. Having heirs who might have to sell off parts of your estate is another reason to get whole life insurance, or if your heirs will need to have money to pay off estate taxes. When you’re looking to equalize inheritances, then a whole life insurance policy is a great option. Also, if you’re looking to leave money or inheritance after you spend your retirement savings, then whole life insurance is beneficial.

Moneywise, since term life insurance costs less, it can be easier to start out with a term life insurance policy, and then you can always convert it to whole life later. Or, if you currently have term life insurance, you can choose some parts of your insurance policy to convert to whole life instead of all of it. Term life insurance is a great option if you’re looking to replace your current income for a certain amount of time. You can also choose a term life insurance policy that covers your final expenses.

If you’re still not sure what type of life insurance you should get, here are some things to consider when weighing whole life vs term life insurance options:

  • The financial needs of yourself and family
  • Your current debt and mortgage
  • When you’re looking to retire
  • The retirement plan you have
  • Death and funeral expenses
  • The age of your children
  • Your health
  • Your age

When you’re ready to choose your life insurance policy, speak to a life insurance agent, because there are many flexible options for life insurance that may suit you and your family.

insurance agent with papers

When to Convert Term Life to Whole Life Insurance

In most cases, you can convert your term life insurance policy to permanent whole life insurance.

Some good reasons to convert life insurance policies are:

  • You need a non-taxable investment option.
  • You’re looking to extend your life insurance coverage.
  • You’re setting up an estate.
  • You’re setting up a trust.
  • Your life insurance policy is about to expire.

Converting term life to whole life is a great way to build the cash value you can borrow from. You’ll also have many different options when it comes to the structure of converting your loan.

Why Buy Life Insurance?

While most people have life insurance policies to have money for their beneficiaries, some enjoy the tax advantages of life insurance. You can enjoy tax-free death benefits, dividends, and tax-deferred growth of cash value. This makes life insurance a great way to avoid taxes, especially if you buy permanent life insurance within a trust, which will help pay the estate taxes that occur when you die.

Keep in mind that tax avoidance and tax evasion are two different things. Tax avoidance is decreasing the amount of taxes you have to increase your income from what’s in the tax code. Tax evasion is illegally avoiding paying your taxes. Examples of tax evasion are inflating deductions, not reporting cash transactions, and not properly reporting your income. Tax evasion is illegal and a way of deceiving in order to avoid taxes.

couple enjoying retirement

Life insurance is also a great way to fund retirement. If your life insurance policy has an investment or cash value, then it can be a great way to have retirement income. This will, however, lead to a lower death benefit and higher fees. 

Buying life insurance also provides you with a way to borrow against the cash value. In this situation, you’ll use your cash value as collateral and borrow from the insurance company. In this type of loan, your credit score wouldn’t be a factor, repaying is normally flexible, and your loan interest goes back onto your cash-value account. However, if you decide to go this route, it can decrease the death benefit.

How to Qualify for Life Insurance

An insurer can change what you need to qualify based on your personal case, but there are definitely several insurers out there to choose from who can meet your specific needs. The healthier and younger you are, the easier it will be to find a policy and qualify for life insurance. But getting life insurance should be affordable, broad, and flexible for anyone. Insurance isn’t just for the wealthy, since there are so many flexible and affordable options out there. If you’ve been rejected from other life insurance policies, you can still find one that approves you. You can also work with a broker to find the right life insurance policy for you. 

It’s Time to Decide: Term Life vs Whole Life

family walking together

After considering these term vs whole life insurance pros and cons, you should have a better understanding of what’s the right life insurance policy for you and your family. 

Would you like to learn more about personal finance? Check out our other articles about everything from mortgages to credit scores.


Opinions expressed here are the author’s alone, not those of any insurance company, agent, or financial institution and have not been reviewed, approved, or otherwise endorsed by any of these entities. It is intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you. 

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