Term Vs Whole Life Insurance Comparison

In modern society, life insurance is essential as a form of financial security in case of death or for future retirement plans.

Life insurance purchasers have a major decision to make on the type of insurance policy they prefer.

The decision made should rely on the reasons behind investing in a life insurance policy.

In life insurance, you can either opt for a term life insurance or whole life insurance.

A term life insurance provides you with temporary coverage for a certain period.

On the other hand, whole life insurance provides lifetime coverage.

Reasons to opt for a term life insurance

  • Term life insurance is favorable if you need temporary coverage to substitute for your earnings for a certain length of time. This can be for your children’s upbringing or a mortgage payment.
  • A term life insurance is cheaper than whole life insurance. If you desire to have a pocket-friendly plan, term life insurance is the best option.
  • If you wished to have alternative investment, the term life policy is budget-friendly compared to a whole life policy. The amount that you would have to add for the whole life plan, you invest it elsewhere.
  • Investing directly in the whole life plan can be unfavorable if you lack the financial means. A term life insurance can be the bridge to investing in permanent life insurance. You first invest in the term life plan and afterward convert it to a whole life plan before the expiration of the deadline.

Reasons to opt for a whole life insurance

  • Whole life insurance is the best option if you want to leave your beneficiaries financially secured after your death.
  • If you want to use some of your retirement money and still have some remaining as an inheritance for your beneficiaries or your burial expenses.
  • It is also a good plan if you have a dependent with special needs. Whole life insurance provides for a special needs trust.
  • You can also opt for whole life insurance so your beneficiaries can utilize the benefits to pay for your estate taxes after your death.
  • It is also important if you want to build cash value within life insurance.

Comparison between term and whole life insurance


In both, the dividends remain constant over time.

Each policy has a different payment plan; it can be monthly, quarterly, or annually depending on your insurance providers’ regulations.

It is less costly for a term life insurance as it only provides you with coverage for a certain period, like 10-40 years.

A whole life policy is costly as the coverage extends to your whole lifetime.

If a lifetime payment is strenuous to your budget, there are plans with payments for only certain duration.

An example of such a policy is a Single Premium Whole Life Insurance.

In such a policy, you have to pay a larger amount for a shorter period and with the same benefits offers.

The premiums paid depend on the age, the covered benefits, and the company you are insuring with.

Death benefits

It is also referred to as payouts.

In both, payouts are a guarantee to the beneficiary.

The payouts are usually given in its full amount with no tax charges.

In a term life policy, you may outlive your term life plan.

In this case, after the plan expires, you can renew it at a higher cost.

If you do not renew the insurance plan, the plan terminates, and the coverage period ends; hence your premiums refunded with no benefits.

If you die within the period of the term life cover, your beneficiaries will receive the agreed benefits.

In a whole life plan, the insurers provide a payout no matter the circumstances, if only you have been paying your premiums.

Cash value

Cash value is an amount of your policy that builds over time at a fixed interest rate and may available for you to withdraw or borrow against it.

Term life insurance builds no cash value, unlike in whole life insurance.

This is what makes whole life insurance expensive.

If you take a loan against it, and you pass on before finishing the payment, the debt is deducted from the payouts.

The beneficiaries receive the face value after subtracting the unpaid debt.

After death, the insurance company takes back the remaining cash value.

If this plan seems very costly, you can opt for universal life insurance that offers lifelong coverage and with almost similar benefits.

Terminating a life plan

Life circumstances change and paying the premiums can turn out to be challenging.

Moreover, you might have accomplished the reasons behind your investment.

At this point, when the life insurance policy is no longer a necessity, you can decide to quit.

In a term life plan, all you need to do is stop paying the premiums and end the policy.

In this situation, you will not receive any benefits, just the premiums you invested.

For whole life insurance, you can also stop paying, but that does not terminate the policy.

The insurer will pay the premiums on your behalf using your cash value until exhausted.

The best way to end a whole life policy is to get in touch with the insurer and surrender it.

You will receive a surrender value, which is the cash value, deducted charges that you may incur for terminating the plan.

Converting one life plan to the other

Changing from term life to a whole life policy:

As stated before, it is possible to change your policy without having to purchase a new one.

In a term life policy, there is always an option to convert it to a whole life policy within a provided deadline.

The process is more straightforward; all you need to do after is to increase your premiums to the amounts provided for a whole life policy.

Changing from whole life to a life term policy

To achieve this, consult your insurer on the possibility to convert your policy to a term life plan.

The insurance company will inform you of the period that the new term will cater to depending on your existing cash value amount.

This decision terminates the whole life policy.