Term vs. Whole Life Insurance: Key Differences (2024)

FAQs

Term vs. Whole Life Insurance: Key Differences? ›

Term life policies provide temporary coverage for a specified period, expiring when the term ends. Whole life policies, as with all permanent plans, provide lifelong coverage. Whole life insurance also has a cash value component you can withdraw from or borrow against while still alive.

Term life insurance tends to be much cheaper than whole life coverage because term policies do not have a cash value component and may expire without paying any benefits. Whole life insurance is a form of permanent life insurance that covers the person for their entire life rather than a fixed period of time.

Whole life insurance is permanent insurance, as it is certain to pay the face amount either as an endowment at age 100 or upon death of the insured. In contrast, term insurance is temporary insurance, as it provides protection for only a specified term.

Term life insurance is cheaper than whole life and covers you for a set period of time. Whole life insurance typically lasts your entire life and can build cash value, which makes it a more complex and expensive product.

Flexibility: Term life is more flexible in terms of coverage duration. You can choose a term that aligns with your specific needs, such as the duration of a mortgage or until your children become financially independent. Whole life insurance offers less flexibility because it is designed to provide lifelong coverage.

When your term life insurance plan expires, the policy's coverage ends, and you stop paying premiums. Therefore, if you pass away after the policy ends, your beneficiaries will not be eligible to receive a death benefit.

A more complex product than term life insurance. Higher premiums than term life insurance. Could be costly if coverage lapses early.

The difference between term insurance and life insurance is that term insurance only offers death and tax-saving benefits, whereas life insurance provides death, maturity, survival, and tax-saving benefits. Policybazaar team will help and support you at the time of claim.

Whole life insurance is a permanent policy with a death benefit that covers the insured for life, as opposed to term life insurance, which only covers the insured for a set number of years. Policies accrue a tax-deferred cash value over time, which policyholders can withdraw from or borrow against for large expenses.

What is the biggest advantage of term life insurance? ›

The main benefit to level term life insurance is that it is very affordable, with low monthly premiums and the ability to cover you for the period of time most important to you. Your beneficiaries can use the death benefit to pay for anything from a mortgage to education expenses.

With a cash value life insurance policy, like whole life or universal life insurance, you can access the cash value. One of the ways to do that is to cash out or surrender the policy. If you choose to cash out your policy, you'll receive the cash value minus any surrender fees.

Whole life insurance is designed to last your entire life. It will never expire as long as you continue to pay premiums, which will never change. In addition to a guaranteed death benefit for your beneficiaries, it can allow you to build cash value, which accrues interest over time.

Term life insurance provides coverage for a set period of time, typically between 10 and 30 years, and is a simple and affordable option for many families. Whole life insurance lasts your entire lifetime and also comes with a cash value component that grows over time.

Drawbacks of term life insurance

If you outlive the term of your term life insurance, the policy expires and has no value. If you're looking for a way to leave money behind, a term life insurance policy most likely isn't a good fit. No cash value. Term life insurance doesn't build cash value.

Term life insurance is likely your most affordable option, especially for seniors. Premiums for term life insurance policies are typically five to 15 times cheaper than whole life insurance. Low premiums can be particularly valuable for seniors on a fixed income.

However, if you have a serious health condition that would make a new life insurance policy difficult or nearly impossible to get, converting your term life policy to whole life just might be your best bet.

How term life insurance works: The basics. A term life insurance policy is the simplest, purest form of life insurance : You pay a premium for a period of time – typically between 10 and 30 years – and if you die during that time a cash benefit is paid to your family (or anyone else you name as your beneficiary).