Whole Life Insurance vs. Term Life Insurance

I have many times gotten the question, what is the difference between term and whole life insurance .


Term life insurance is the most common type of life insurance purchased as it often has the lowest cost to the proposed insured. Most often, a policy will have a level premium and coverage amount. For example, a $500,000 20 year term plan will have the same premium payment for 20 years and the $500,000 of coverage will stay level during that time. After the 20 year period is over, the premium will generally increase significantly and most people will not continue the policy further. Insurance companies often offer various level term options, most commonly 10, 15, 20, and 30 year terms.

Term life insurance is often appropriate when the coverage is only needed for a set amount of time. Examples can include someone matching the length of the term with the number of years left on a mortgage or based on when their youngest child graduates college or is no longer a minor. Businesses will often also purchase term life policies to fund buy-sell agreements or on a key person. Another important component of term life insurance to some people is the built-in conversion option. Often an insurance company will allow for a term life policy to be converted to a whole life or permanent life insurance policy in the future with no health questions asked. So if someone ultimately would like permanent life insurance in the future but it does not fit into their current budget, then a term policy can guarantee them the ability to convert to a permanent policy in the future regardless of their health at that time.


Whole life insurance is one type of permanent life insurance and generally requires significantly higher premiums than term life insurance for a comparable amount of coverage. The most common types of permanent life insurance include whole life, universal life, indexed universal life, and variable universal life. The common theme among these policies is that they are generally designed to last someone’s entire life, unlike term life insurance which is set up to only last for a predetermined amount of years. Additionally, most permanent life insurance policies will build a tax-favored cash value that the policyholder can access via withdrawals and loans.

People will generally purchase whole life or permanent life insurance when they want the policy to last for the rest of their lives and/or they are interested in building up a cash value in a policy. Permanent life insurance benefits can be used to cover funeral and other final expenses, or to leave an inheritance. Permanent life insurance policies can also be a tax efficient way for long-term savings as the cash value will grow tax-deferred and can often be accessed tax-free via withdrawals and loans. Permanent life insurance policies have also become an option for long-term care planning, as a long-term care rider can be added to a policy to help cover those costs.

For a more comprehensive description on the different types of policies, you can refer to my article The ABC’s of Life Insurance For a Young Family.


Brett Sigler is a vice president and co-founder of Client Focused Advisors. He has worked in financial services since 2010, with a focus on life insurance, investment advice and financial planning. Brett lives in Stamford, CT with his wife and daughter