Whole Life vs Term Life Insurance

  1. Whole life vs term insurance definition
  2. What is difference between whole and term life insurance?
  3. Term vs whole life insurance pros and cons?
  4. Which is better, term or whole life insurance?
  5. Cost of whole life insurance vs term insurance?
  6. How does term and whole life insurance treat smokers?
  7. Who offers term and / or whole life insurance?
  8. Is term or whole life insurance better for seniors?
  9. What other life insurance options are out there?

Many websites try to cover this topic, but in most cases only a part of the information is covered. We have collected all the relevant insights to make sure that you can make an empowered decisions about your insurance coverage when choosing between term and whole life.

So, let’s get started…

Whole life vs term insurance definition

The main difference between whole life and term is that term expires and whole life does not. Additionally, term is “pure insurance,” meaning it only offers insurance and nothing else. Whole life, on the other hand, has an investment component to help you save money or build wealth.

Let’s take a closer look.

Term Life Insurance Whole Life Insurance
Term life insurance provides coverage for a set number of years. For example, Term 10 is 10 years, Term 20 is 20 years, etc. It’s a simple, straightforward product with no savings or cash accumulation components. If the policyholder dies, the beneficiaries receive the coverage amount. Whole life insurance was created to solve two needs – lifelong insurance that did not expire and tax advantaged savings.

In the whole life cash savings component, your money is invested. You can access it by surrendering (terminating) the policy, or you can borrow against its value.

This chart illustrates more main differences between the two products.

Term Life Insurance Whole Life Insurance
Coverage length
Premiums comparison
Premiums at renewal
Cash accumulation

 

What is difference between whole and term life insurance?

When you are choosing between term life and whole life insurance, there are six things to keep in mind. We’ve outlined them in the chart below. The reason you want to consider these factors is this: your choice will determine if you need to renew the policy, if you can use the policy as a cash savings vehicle, and if the policy suits your risk tolerance.

Term Life Insurance Whole Life Insurance
Coverage length Limited Life long
Insurance coverage Yes Yes
Cash accumulation No Yes
Can choose amounts going into insurance and cash accumulation

No
(only possible with universal life)

No
(only possible with universal life)

Eligibility for dividends No Yes
Risk The risk is that the policy expires and costs more – significantly more as you age – each time you renew. There are very little risks. The premium will not increase, and your investment is guaranteed.

 

Term vs whole life insurance pros and cons?

As with every insurance policy, there are pros and cons to consider. Let’s start with the pros.

Term Life Insurance Whole Life Insurance
Lower price: Term is the cheapest of all the policy types. Life-long coverage: Once in force there is no need to renew.
Riders: Term can be customized with riders depending on what the insurer provides. Return of premium and critical illness are two examples. Guarantees: Your investment is secure and your premiums will never increase.
Access: Since term is so affordable and also available as a simplified and guaranteed product, it is fast and easy to obtain. Savings: The ability to save cash in a tax advantaged account helps with savings and wealth building.

Both policies have their advantages, but there are some drawbacks to consider.

Term Life Insurance Whole Life Insurance
Limited length of coverage: The lower premium is driven by the fact that these policies expire – and they cost more with each renewal. Higher price: Whole life insurance is among the highest premium among all the policy types.
Health is a major risk factor: The best rates are reserved for the young and healthy. If you are older or in poor health, you may need to pay more for a simplified or guaranteed issue policy. Complicated: There are many factors you must know and understand to make this policy work for you, including the MTAR rules and how/when to leverage the cash savings.
Ease of access: Why would this be a drawback? Since you can quickly get term insurance online or even over the phone, many skip using an agent or broker. That means they also miss out on having an in-depth needs assessment done, resulting in better, more tailored coverage; riders; and extra considerations such as long-term care insurance.

 

Accessibly: As a complicated policy, it takes time to set up. If you need insurance fast (for a mortgage, etc.) know that this policy takes longer to get in force than term.

 

Which is better, term or whole life insurance?

The truth is, no one policy is better than the other. It all depends on your situation and needs. An insurance professional will consider your finances, debts, long-term goals, health and family health history, etc., before recommending term or whole life insurance.

Go for Term Life Insurance if… Go for Whole Life Insurance if…
  • You are looking for protection for a set amount of time, such as the duration of a mortgage.
  • You want coverage that never expires.
  • You want a policy in force to take care of your children until they can live independently.
  • You want rates that never change.
  • In the short term, you want lower life insurance premiums. Remember, premiums increase with each renewal.
  • You want a hands-off approach to investing your money.
  • You are satisfied with your current investments and do not want or need the protection the cash savings account of whole life offers.
  • You want someone to monitor your investments and report the progress to you.

 

Cost of whole life insurance vs term insurance?

When talking about the costs of whole life insurance vs term life insurance, it is not necessarily an apples-to-apples comparison. Term life insurance will have a limited length of coverage and no cash accumulation component. Whole life insurance offers lifelong coverage and cash accumulation features.

To make numbers more comparable, we will look at the same amount of coverage for a term and whole life insurance policy: $300,000.

Term Life Insurance Whole Life Insurance
30 year-old male, non-smoker, no health preconditions

$21 / month
(Term 20)

$155 / month

40 year-old female, smoker, no health preconditions

$62 / month
(Term 20)

$213 / month
50 year-old male, non-smoker, no health preconditions

$83 / month
(Term 20)

$390 / month
60 year-old female, smoker, no health preconditions

$346 / month
(Term 20)

$565 / month

Whole life insurance is more expensive than term, but remember – it holds a lot of extra value. You are saving cash, your premiums never go up, and the policy does not expire.

 

How does term and whole life insurance treat smokers?

Smoking is considered a big risk whether you are seeking term or whole life insurance. Expect to pay higher rates – sometimes even double – if you are an active smoker. If you quit and have remained a non-smoker for a number of months (your insurer can tell you how many are needed for non-smoker rates) be sure to update your insurance company.

 

Who offers term and / or whole life insurance?

It’s very easy to get term life insurance. It is offered by life insurance companies, agents, brokers, banks, online and over the phone. Bank insurance is usually debt insurance to cover a loan or mortgage, and the bank is the primary beneficiary.

Whole life insurance is available from larger/long-term established insurers, brokers, and agents. Due to the nature of this policy, always work directly with an insurance professional to set it up.

 

Is term or whole life insurance better for seniors?

Since whole life insurance’s premiums are higher with age, seniors may want to consider a simplified or guaranteed issue term product to help manage rates. However, a broker can shop the market on the senior’s behalf and provide a comparison of the policies along with advice, empowering the senior to make a decision in their best interest.

 

What other life insurance options are out there?

Whole life insurance is not the only option for coverage that never expires.

Universal life insurance is cheaper than whole life. This is because it has a min/max range for the premium, enabling you to contribute just the cost of insurance on some months and extra on other months. The extra goes into the cash savings account. With universal life, the savings are not guaranteed – another reason why this policy cost less than whole life. The cash is more readily accessible, however, and these policies have a very solid performance history.

Term 100 covers you to age 100 with pure insurance. While there is no cash investment component, the premiums do not increase and there is no need to renew.

 

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