Life insurance comes in two broad families: term and permanent. Whole life is the best-known kind of permanent coverage. Both pay a death benefit to the people you name, but they work very differently and cost very different amounts.
How term life works
Term life covers you for a set period — commonly 10, 20 or 30 years. If you die during that period, your beneficiaries receive the death benefit. If you outlive the term, the coverage ends and nothing is paid out.
- Lowest cost for the amount of coverage
- Premiums usually stay level for the whole term
- No savings or cash value
- Many policies can be converted to permanent coverage later without a new medical exam, within certain time limits
How whole life works
Whole life covers you for your entire life, as long as premiums are paid.
- Premiums are level and usually much higher than term for the same death benefit
- Part of each premium builds cash value, which grows at a guaranteed rate
- You can borrow against the cash value; unpaid loans reduce the death benefit
- Some policies also pay dividends, which are not guaranteed
Which one fits your situation
Term life tends to fit when the main goal is to replace income during the years people depend on you — while children are growing up or a mortgage is being paid off. It gives the most coverage for the least money.
Permanent life tends to fit when you have a need that never expires: leaving money for a dependent who will always need support, covering final expenses, or planning for estate costs.
Some people buy term coverage and invest the difference in premium separately. Others value the guarantees and forced savings of whole life. Neither is right for everyone — it depends on your budget, how long the need lasts and how much certainty you want.
Compare the same amount of coverage
Life insurance pricing depends heavily on age and health, and carriers weigh those factors differently. Decide on the type and amount of coverage first, then compare quotes for exactly that from several carriers.
This guide is general information, not financial advice. For complex situations such as estate planning, speak with a licensed professional.
This guide is general information, not legal, tax or financial advice. Coverage options, discounts and eligibility vary by carrier and by state.
