Term vs. whole life insurance: What are the differences?

Choosing between term and whole life insurance comes down to how long you want coverage and how much you can afford. Term life is more affordable but lasts only for a set period of time. On the other hand, whole life insurance tends to have higher premiums but never expires. Knowing the differences between term and whole life insurance will help you choose a policy that works best for you and your lifestyle.

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How does term life insurance work?

Term life insurance typically lasts from 10 to 30 years, depending on how long you want coverage. If you die while your policy is still active, then your beneficiary receives the death benefit payout. Since it lasts for a set period of time, term life is more affordable than permanent life insurance but still offers similar payout amounts.

Term life can also be purchased to supplement whole life insurance during certain life events, such as buying a home. If something were to happen to you, your family could pay off the mortgage with the death benefit from your term policy, leaving the payout from your permanent policy for other expenses.

How does whole life insurance work?

Whole life insurance provides lifelong coverage as long as you pay your premiums. No matter when you die, your beneficiary will receive the death benefit payout. It also has a cash value savings component that builds in value over time, which you can use to pay your premiums or borrow against in the form of a life insurance loan.

Important note: If you withdraw or borrow against your policy's cash value without repaying it, you will reduce the cash value and death benefit of your policy.

Term vs. whole life insurance: Key differences

The differences between term life insurance and whole life insurance generally come down to four factors: cost, coverage length, cash value, and complexity.

FeatureTerm life insurance Whole life insurance
CostTerm life insurance Lower premiumsWhole life insuranceHigher premiums
Coverage lengthTerm life insurance You choose, typically between 10 and 30 yearsWhole life insuranceLasts your entire life if you pay your premiums
Cash value?Term life insurance NoWhole life insuranceYes, grows in value over time at a fixed rate
ComplexityTerm life insurance Coverage is straightforward, with fixed premiums and death benefitWhole life insuranceCoverage is more complex, as the death benefit amount can change if you have an outstanding loan against your policy's cash value

The pros and cons of term and whole life insurance are clear: Term life insurance is simpler and more affordable but has an expiration date and doesn't include a cash value feature. Whole life insurance is more expensive and complex, but it provides lifelong coverage and builds cash value over time. Choosing between the two will come down to your specific needs and financial situation.

Reasons to consider term life insurance

  • You're looking for low-cost coverage: Term life generally offers lower premiums compared to whole life and other types of permanent life insurance, making it easier to fit in a budget.
  • You don't need lifelong coverage: If you only need financial protection for a certain number of years, say while your kids are still dependent on you, then term life insurance may be the right fit for you.
  • You want to supplement a whole life policy: As mentioned earlier, it may make sense to take out a separate term life policy to supplement a whole life policy in order to cover larger debts, such as a mortgage. Your beneficiaries could then use your whole life policy's payout to cover other expenses.
  • You may want a whole life policy later: Many term life insurance policies include a conversion rider that allows you to switch from term life to whole life insurance. When and how you can convert your policy will vary by insurer, so make sure you clarify the details with your insurer when applying for a term life policy.

Reasons to consider whole life insurance

  • You want a policy that builds cash value: A whole life policy with cash value gives you greater financial flexibility, and you can also use it to pay your premiums.
  • You want or need lifelong coverage: Since it lasts for your lifetime, whole life insurance is more suitable for end-of-life planning, such as covering funeral expenses and leaving an inheritance for your children. You can also use whole life insurance to provide funds for loved ones who will need ongoing care, such as a child with a lifelong disability or an elderly parent that you support.

Alternatives to term and whole life insurance

There are other types of life insurance you may consider that offer more options or fit a specific need:

  • Universal life insurance: Like whole life, universal life insurance offers lifelong coverage, but it offers you greater flexibility. For example, you can adjust or skip premium payments, as well as change your death benefit amount.
  • Variable life insurance: Variable life insurance also lasts for your entire life and includes a guaranteed death benefit, but the cash value component grows based on specific investments you select. This policy type is a bit riskier than others and carries additional fees.
  • Indexed universal life insurance (IUL): Another form of universal life insurance, only with this policy type your cash value grows based on the performance of a set grouping of stocks. As with variable life, IUL is riskier than traditional whole and universal life policies.
  • 1-year term life insurance: Meant for short-term coverage gaps, such as being in between jobs, one-year term life policies can give you low-cost coverage while you look for a new job or figure out your long-term coverage needs.

If you're still unsure what type of life insurance is right for you, call 1-866-912-2477 to speak with a licensed Progressive Life by eFinancial representative. They'll offer advice, show you your options, and let you compare quotes.

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Please note: The above is meant as general information to help you understand the different aspects of insurance. Read our editorial standards for Answers content. This information is not an insurance policy, does not refer to any specific insurance policy, and does not modify any provisions, limitations, or exclusions expressly stated in any insurance policy. Descriptions of all coverages and other features are necessarily brief; in order to fully understand the coverages and other features of a specific insurance policy, we encourage you to read the applicable policy and/or speak to an insurance representative. Coverages and other features vary between insurers, vary by state, and are not available in all states. Whether an accident or other loss is covered is subject to the terms and conditions of the actual insurance policy or policies involved in the claim. References to average or typical premiums, amounts of losses, deductibles, costs of coverages/repair, etc., are illustrative and may not apply to your situation. We are not responsible for the content of any third-party sites linked from this page.