What is the Difference Between Term and Whole Life Insurance?

What is the Difference Between Term and Whole Life Insurance?

Are you considering buying life insurance but don't know where to start? Here's a money-saving tip: get it while you're still young(er) and healthy!

Now, let's look at the two main insurance options: term life and whole life insurance. We will examine the pros and cons and the difference between term and whole life insurance policies. (Then, I'll tell you what I chose for my family!)

What Is Life Insurance and How Does It Work?

Life insurance provides financial protection by protecting your lost income if you die unexpectedly. You create a contract with an insurance carrier that is paid by a yearly or monthly premium. Premiums are based on the type of insurance you are obtaining and the statistical risks posed to the carrier (your age, career, medical conditions, etc.).

Having a life insurance policy is particularly important when you have family members that depend on your income. This is because the death benefit (the total amount paid out by your life insurance company) can replace your income, pay for funeral costs, and cover any debts you may have by awarding these funds to your chosen beneficiary.

A beneficiary is the individual or individuals that you choose to receive the death benefit, such as a spouse or children. However, you can also designate this amount to anyone you’d like (including pets or charities). 

Term Life Insurance

Term life insurance provides a death benefit to your chosen beneficiaries if you were to pass away in a given period. The term length of the policy can range from 10 to 30 years but are often customizable if you need a different length of coverage time. As long as you continue to pay the premiums determined by the insurance carrier, you will be covered until the term expires. 

To secure a term life insurance policy, you will want to research the best life insurance companies for your particular needs. After researching companies and getting quotes (mostly based on age and health), you must fill out an official application with the carrier you choose.

This application will ask for proof of income, a release of health records from your doctor, and a series of general questions in your application about your age, income, marital status, health conditions, and hobbies. Once you fill out the application, you will have a phone interview and set up a medical exam. 

The medical exam is an in-depth look at your health and the risks you pose to the insurance carrier. You will need to take a blood and urine sample and answer a series of health questions to help the underwriters determine a premium amount for your policy.

Once underwriters look through your application and you are approved (which can take about three to six weeks), your coverage begins. 

Because term life insurance expires after a certain amount of time, the policies are much less expensive than whole life insurance, making this an important factor in determining whether or not to purchase a term vs. whole life insurance policy.

This is especially true if you secure coverage when you are younger and in better health.

If you were to pass away during the term you selected, your designated beneficiaries would receive the death benefit payout. 

Term Life Insurance Pros and Cons


  • Term life insurance policies usually come with a much more affordable price tag, making this a good option if you only look for coverage for a certain amount of time. 
  • The process to obtain term life insurance is fairly straightforward.
  • Your rate won’t go up after you obtain a policy due to an unexpected health issue, so securing a policy when you are younger and healthier is recommended to obtain the best rate possible.
  • Because there are so many different companies that offer term life insurance, and these companies all have diverse requirements, finding coverage despite having certain health ailments is still possible.


  • Term life insurance expires, so once your coverage ends, your policy also ends. This means that you would then need to re-apply for a new policy (which may be harder and more expensive at that time) if you still needed coverage.
  • It can be difficult to be approved for coverage if you have certain medical conditions. Alternatively, you might be paying a much higher rate because of these ailments.
  • Even though you pay for monthly coverage, your policy does not build cash value.

Is Term Life Insurance Worth It?

Term life insurance has some pros and cons, but it still can be a great way to ensure your family is financially secure, even in unplanned circumstances. In most cases, term life insurance policies can be obtained at an affordable monthly rate, making this a beneficial safeguard.

Life is unpredictable, and if you have dependents or a spouse who requires your income to make monthly payments, you should look into term life insurance. Because you can generally predict when your children will be out of the house and when your mortgage will be paid off, you may choose to purchase a policy that only provides coverage during this period.

Whole Life Insurance

Whole life insurance is a type of permanent insurance, meaning that the policy never expires as long as you pay your premiums. Additionally, this type of policy has an investment component. It allows you to amass funds in a tax-deferred “savings account.”

This savings account is like a hybrid between a tax-deferred retirement account and a regular savings or brokerage account. You don't get a tax deduction on the money you put into the policy, but you don't pay taxes on any of the growth of the money until you cash out. Indexed Universal Life works similarly.

So, while also providing a death benefit if you were to pass away, part of your premiums are put towards a cash-value portion of your whole life insurance policy.

The cash-value component in a whole life insurance policy provides a living benefit where you can draw upon this tax-deferred amount as the policyholder. The amount you withdraw from your cash-value portion of the policy can be used towards retirement or to take out a loan against it.

If your beneficiaries were to be subject to an estate tax, you may choose to use some of the cash-value funds to subsidize this amount so that your beneficiaries would receive the total death benefit.  

Because whole life insurance is multifaceted, you will pay a higher premium than a term life insurance policy.

Whole life insurance can cost anywhere from five to twelve times the cost of term life insurance, making this a much larger financial commitment.

Similar to term life insurance, you will have to answer questions about your demographics and health and take a medical exam. 

After applying for life insurance, some people find that the only policy that will take them is the whole life insurance. This is because they have health conditions or lifestyle choices that an insurance company finds very risky. Tobacco use is an example of a lifestyle choice that may disqualify you from term life insurance.

Whole Life Insurance Pros And Cons


  • Whole life insurance never expires. So you can keep the policy as long as you need without the price increasing, despite aging or having any health issues arise. This can be comforting for some people who worry about their health deteriorating.
  • It can be used as an asset in addition to providing a death benefit that you can withdraw against to fund future purchases or retirement.
  • A whole life insurance policy may pay out dividends. This is because when you secure a whole life insurance policy, the carrier assumes that the cash-value portion of the policy you contribute will increase at a certain rate. If your policy grows more than what the carrier originally assumed, it could pay you dividends, which can be reinvested or cashed out. 
  • Whole life insurance is easier to get than term life insurance for people with certain medical conditions or risky lifestyle choices.


  • The cost of whole life insurance is one of the biggest drawbacks to purchasing this type of policy. As noted, it is much more expensive than term life insurance because of the added cash-value component of the policy.
  • Furthermore, due to the policy's cost, some may purchase a lower coverage because the premium costs less. This could result in being underinsured. 
  • Additionally, because multiple components are associated with whole life insurance policies, they can be more difficult and complex to secure and understand. Finding the best policy for your needs may take more time and research.
  • The savings account may not be the best investment for your money. There are far more productive and profitable ways to invest your money than through your life insurance plan.

Is Whole Life Insurance Worth It?

Whole life insurance is a good idea to secure if you are looking for an income replacement but also find value in having a forced savings component built into the policy.

You may choose whole life insurance because you want peace of mind with coverage for your whole life or because you have an existing medical condition that makes it difficult to get term coverage.

Wrapping Up

Bottom line: both types of policies will provide you and your family with security, knowing that they would be financially protected if you were to pass away.

If you want an added cash-value component to your policy to add to your financial portfolio and don’t mind spending more each month, then you might be a good candidate for whole life insurance.

However, if you are just looking for financial protection for your family members for a certain period, then term life insurance may be a better option.

Either way, it is always best to research and talk to professionals, friends, and family members who have purchased a policy before.


Founder at Play Louder !

Joe DiSanto is the founder of Play Louder! He has built multi-million dollar businesses, produced critically acclaimed documentaries and an Emmy-winning TV show, invested millions in real estate, and semi-retired at age 43. Now, Joe serves as a Fractional CFO for several creative firms and is sharing a lifetime of fiscal know-how via Play Louder, an invaluable resource that helps individuals and business owners increase their net worth and plan better for their future.