The short answer
This guide answers the most common questions about term vs whole life insurance.
There are two main kinds of life insurance: term and permanent. Whole life is the most familiar permanent kind.
Here is a clear comparison of term vs whole life insurance so you can pick the right fit.
Part of our complete guide: Term Life Insurance: The Complete Guide.
Quick answer
Term: lower cost, set length, no cash value. Whole life: lifelong coverage and cash value, higher cost. Convertible term keeps the door open to permanent coverage later.
MarketView Agency is an independent insurance agency (National Producer Number 18345705).
On this page
- Difference between term and whole life: should you buy term or whole life?
- How term life insurance works
- Can you change term into whole life?
- What affects the cost of term life insurance?
- Is the payout taxed?
- Why work with an independent agency
- What if you miss a payment?
- Who term life insurance is for
- Frequently asked questions
Difference between term and whole life: should you buy term or whole life?
| Feature | Term life | Whole life |
|---|---|---|
| How long it lasts | A set term, like 20 years | Your whole life, if premiums are paid |
| Cash value | None | Builds over time |
| Cost for the same amount | Lower | Higher |
| Best for | Needs with an end date | Lifelong needs and planning |
Many families buy term for big, temporary needs, such as the mortgage and raising children, and a smaller whole life policy for lasting goals like final costs or leaving a legacy.
We cover this in detail in How to Buy Non Medical Life Insurance: What to Know.
How term life insurance works
Term life insurance covers you for a set number of years, such as 10, 20 or 30. If you pass away during the term, the policy pays a death benefit to your beneficiaries. If you outlive the term, the coverage ends and nothing is paid.
Because it does not build cash value, term is usually the most affordable way to buy a large amount of coverage. It fits needs that have an end date: a mortgage, raising children or replacing income until retirement.
Compare rates from several carriers in about two minutes. Free, no obligation.
Can you change term into whole life?
Most term policies can be converted to a permanent policy for some or all of the amount, without a medical exam, within a set window. This protects you if your health changes.
- Check when the conversion window closes, often at a certain age or policy year.
- Check which permanent products are available for conversion.
- Expect a higher premium for permanent coverage, based on your age at conversion.
What affects the cost of term life insurance?
Term life pricing comes down to risk and time. Your age, health and habits describe the risk. The amount and term describe how much and how long the insurer is on the hook.
Two practical tips: buy when you are younger, and compare carriers. Insurers judge the same health history differently, and that can move your rate class.
Is the payout taxed?
In most cases, your beneficiaries receive the death benefit generally income-tax-free. They file a claim, the insurer pays, and the money is theirs to use for the mortgage, bills or anything else.
- Interest can be taxable. If the benefit is paid in installments, the interest portion may be taxed.
- Estate tax is separate. A policy you own can count toward your estate. Most families never reach the federal estate tax limit, but large estates should plan ahead.
- Ownership matters. Who owns the policy, who is insured and who is the beneficiary can change the tax result. Three different people in those roles deserves a closer look.
This is general information, not tax advice. A tax professional can look at your exact situation.
How to get covered in 3 steps
- Check your rate. Pick your state and answer a few quick questions about the coverage you want.
- Compare carriers. A licensed agent compares term life insurance options from several insurers and explains the trade-offs.
- Apply and get covered. Many applications take one phone call. Coverage starts once the policy is issued and the first premium is paid.
Why work with an independent agency
A captive agent works for one insurance company and can only offer its policies. An independent agent is appointed with several carriers and can compare them side by side.
That matters because carriers price the same person differently. One may be friendlier to a past health condition, another to tobacco users, another to larger coverage amounts. Comparing several gives you a better chance at a fair price.
You do not pay extra to use an independent agent. Agents are paid by the carrier you choose, and the premium is the same as buying from that carrier directly.
What if you miss a payment?
Missed payments are one of the most common reasons coverage ends early. A grace period gives you some time to catch up, but it is not unlimited.
If money is tight, call before you stop paying. On some policies you can lower the coverage amount, change the payment mode or use other options to keep at least some protection in place.
Who term life insurance is for
Often a good fit
- Parents with children at home. Homeowners with a mortgage. Anyone whose income supports others. People who want a lot of coverage at a lower price.
Maybe not the right fit
- People who need coverage for life, such as for final costs or estate planning. People who want cash value they can use later. In those cases, permanent coverage may fit better.