Term vs. Whole Life Insurance: Which is Better?
It’s finally time to purchase life insurance. You know why you need it and who you need it for, but when it’s time to choose a policy, you’re presented with two options: Term life and whole life. And before you know it, you have a million questions…
Which one do I choose? Is one cheaper than the other? How do I know which one is better? Will this actually fit me and my situation?
This endless loop of questions is a common place to be in, and we see you. At Grimes Insurance Agency, we’ve helped West Texans understand their life insurance options since 1948. It’s important to know what your life insurance policy includes, what it means, and how it protects those you care about.
In this guide, we will walk you through the differences between term and whole life insurance, their benefits, and how to decide which option is right for you.
What is the Difference Between Term and Whole Life Insurance?
What is Term Life Insurance
Term life insurance is a policy that provides temporary coverage for a specific amount of time. The most common policies are for 10, 20, or 30-year terms. Your term timeframe depends on your personal situation and details.
What is Whole Life Insurance
Whole life insurance is a type of permanent life insurance policy. Instead of offering coverage for a certain number of years, it provides insurance coverage for your entire life.
What affects life insurance premiums?
The monthly amount you pay for life insurance depends on a variety of factors. Both term and whole life insurance depend on specific information, such as:
- Your age
- Your gender
- Your occupation
- Your health status and history
Do you smoke? Do you work a high-risk job? Does heart disease run in your family?
Your answers to these questions help your insurance provider determine the perceived risk of insuring you. The riskier you appear, the higher your premiums might be.
Additionally, the biggest factor in determining your life insurance premium is the type of policy you purchase. While both options rely on the same information, purchasing term life insurance is much cheaper than whole life.
Think of life insurance as shopping for a house:
Term life insurance is like renting a home for 10 years. Whole life insurance is like buying one.
While it’s not a long-term solution, term life insurance is affordable and provides the coverage you might need at the moment. On the other hand, whole life insurance offers growing, life-long protection at a higher, but more consistent price.
It’s easy to fall into the trap of choosing the cheapest option. Cost is an important factor in purchasing decisions, but the lowest price doesn’t always mean the best fit.
Let’s break down how term life and whole life insurance compare.
What are the Pros and Cons of Term vs. Whole Life Insurance?
Term Life Insurance Pros
It’s affordable
For most healthy people, a 20-year term policy is very affordable. On average, a 30-year-old could purchase a $500,000 policy for an annual premium between $176-$212. Term life policies can provide substantial coverage for a low monthly payment. Due to it being a temporary policy, term life insurance is often the cheapest option.
| Age and gender | 20-year term policy | Whole life policy |
| 20-year-old woman | $176 | $2,260 |
| 20-year-old man | $212 | $2,548 |
| 30-year-old woman | $184 | $3,292 |
| 30-year-old man | $215 | $3,662 |
| 40-year-old woman | $280 | $4,967 |
| 40-year-old man | $330 | $5,524 |
| 50-year-old woman | $640 | $7,782 |
| 50-year-old man | $815 | $8,749 |
| 60-year-old woman | $1,650 | $12,670 |
| 60-year-old man | $2,342 | $14,517 |
| 70-year-old woman | $7,785 | $21,766 |
| 70-year-old man | $10,968 | $24,797 |
Remember, it’s easy to fall into the trap of choosing the cheapest option. Cost is an important factor in purchasing decisions, but the lowest price doesn’t always mean the best fit.
It satisfies specific needs
Do you have a young family? Are you paying off a mortgage? Have you teamed up on a new business venture? If so, you have current needs that require specific protections.
A term policy can help replace your income while your children are dependent on you, help your family continue mortgage payments, or provide financial support for business partners if something happens to you.
It’s simple to get
Both types of life insurance policies require medical underwriting, in addition to meeting certain health and personal criteria. However, most healthy individuals can easily qualify for term-life insurance.
Term Life Insurance Cons
It will expire
Term life policies don’t last forever. Once your term ends, so does your coverage. The protection you paid for 20 years disappears with no death benefit or payout. To request a new policy, you must begin the process again.
You might outlive it
As term policies age, so do you and your premiums. If you outlive your 10-year policy and want to renew it, the amount you’ll pay is recalculated based on your current age and health.
Let’s say you’re a 40-year-old female who has taken out a $250,000 policy for a 10-year term. You start out paying $52 a month for coverage. However, you’ll be 50-years-old by the end of your term, raising your premium to $132 a month if you decide to renew. Your age alone can double the amount you pay monthly.
Health changes can affect your eligibility
Like age, developing a health condition during your term can make getting new coverage later extremely expensive. In some cases, it might prevent you from securing coverage at all.
Whole Life Insurance Pros
Your premiums never change
Unlike term life, whole life doesn’t expire. It lasts your lifetime without needing to renew. This means that what you start out paying monthly is the same amount you will pay for the rest of your life.
You build cash value
Over time, your whole life insurance policy grows in value, known as cash value. A portion of what you pay in monthly premiums helps build this amount throughout your policy. As the funds grow, you have the option to access that money if you need it.
Your death benefit is guaranteed
Whole life insurance assures that your policy’s amount will be paid to your beneficiaries when you pass. It’s guaranteed and cannot be taken away or decreased, giving you and those you love peace of mind.
Whole Life Insurance Cons
It’s more expensive
In comparison to term life insurance, whole life certainly costs more. On average, a 30-year-old male pays $3,662 in annual premiums for a $500,000 whole life policy, compared to only $212 for a 20-year term policy.
It’s more complex
Whole life insurance has many moving parts. Understanding how factors like cash value and death benefit interact and increase can be confusing. Whole life policies require clarity so you understand what you are paying for, why you’re paying for it, and how it affects your future.
It takes time to build value
While cash value is a pro, it’s slow to build in the beginning. It can take up to 2-5 years to meaningfully grow, and oftentimes 10-15 years before it’s a useful amount and asset.
Side-by-side comparison
| Term Life | Whole Life | |
| Cost | Lower | Higher |
| Coverage | Temporary | Lifetime |
| Cash Value | No | Yes |
| Premiums | May increase when renewed | Fixed |
| Death Benefit | Only during your term | Guaranteed |
| Best For | Temporary financial obligations | Long-term planning |
Term vs. Whole Life Insurance: Which Should You Choose?
Choosing between life insurance options doesn’t have a universal “better” option. The right policy is the one that protects you and your family. It all boils down to your financial goals, budget, and the type of protection you need at the moment.
Let’s review which life insurance option reflects your needs.
When to Choose Term Life
If you’re looking for quick, affordable protection for a period of time, a term life insurance policy might be your best option.
Because of its affordability and specific timeline, term life often makes sense if:
- You have a young family with children
- Your spouse or loved ones are dependent on your income
- You are paying a mortgage on your home
- You’re entering into business with a partner
When to Choose Whole Life
If you’re looking for permanent coverage that guarantees cash value and payout, a whole life insurance policy is where you need to go.
Because of its lifelong protection and cash value component, whole life often makes sense if:
- You have a lifelong dependent (such as your elderly spouse or child with special needs)
- You want to cover estate taxes, settlement, or end-of-life expenses
- You’re looking for a different way to save money that you can borrow from later
- You want to leave behind a guaranteed inheritance
Can I Start With Term Life Insurance, Then Switch to Whole Life?
The short answer is, you can! If you’re in this situation, here’s our practical advice:
If you can only afford one, stick with what you need at the moment. Don’t bite off a policy that you can’t actually chew. If you’re young and on a budget, we recommend starting off with a term policy. Purchase as much coverage as you can comfortably afford. That way, you have protection in place that isn’t breaking the bank. Then, as your income grows, consider adding a whole life policy for something permanent.
The answer isn’t always as simple as choosing one or the other. For many people, it’s eventually having both.
Grimes Helps You Navigate Your Life Insurance Options
Purchasing life insurance isn’t the easiest decision, and it’s difficult to walk through alone. There is no cookie-cutter policy that makes sense for everyone.
The best life insurance policy depends on your goals, budget, and the type of protection your family needs. Term insurance may provide affordable temporary coverage, while whole life may provide lifelong protection and cash value benefits.
If you’re unsure which option fits your situation, call Grimes Insurance Agency to discuss which life insurance policy makes sense for you and your loved ones. We’re prepared to help you compare your options and protect those who matter to you.
