Term Life vs Whole Life: Which is Right for You? Learn the Key Differences in One Article!

The difference between term life and whole life is that term life is cheaper and only provides coverage for a certain period of time, while whole life is much more expensive but provides coverage for your entire life. Whole life insurance also accumulates cash value that you can borrow against later, making it more complicated and more expensive than term life insurance.

Regardless of which policy you choose, your beneficiaries are free to use the proceeds to pay for funeral expenses, mortgage payments, or your children’s school fees, for example. However, depending on your specific needs, one type of life insurance may be more suitable for you.

The difference between term life insurance and whole life insurance

To understand the difference between term life insurance and whole life insurance, let’s first look at how they work.

Term Life Insurance

Term life insurance is pretty simple: It provides coverage for a fixed period of time, such as 10, 20, or 30 years. If you die during that period, the life insurance company pays a payout. If you’re still alive at the end of the term, the policy ends, and the beneficiaries receive no payout. Most term life policies have a fixed death benefit and fixed premiums for the entire term. However, there is also a type of declining term life insurance, where the death benefit decreases over time but the premium remains the same, which is less common.

Ideally, the term of your term life insurance should match the financial responsibilities you want to cover. For example, if you are a new parent, you can choose a 20-year policy to cover your children as they grow up. Term life insurance is usually easy to find, most life insurance companies offer it, and you can easily compare prices online.

Whole life insurance

Whole life insurance is the most common type of permanent life insurance and is usually much more expensive than term life insurance. This is because its coverage can last until you are very old, such as 90, 100 or even 120 years old. Whole life insurance also has a cash value component, and a portion of your premiums will be used to accumulate this cash. Over time, this cash will grow. You can choose to borrow or withdraw this part of the funds after you have accumulated enough cash.