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At Bankrate, we strive to help you make smarter financial decisions. To help readers understand how insurance affects their finances, we have licensed insurance professionals on staff who have spent a combined 47 years in the auto, home and life insurance industries. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation of how we make money. Our content is backed by LLC, a licensed entity (NPN: 19966249). For more information, please see our Insurance Disclosure. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our insurance team is composed of agents, data analysts, and customers like you. They focus on the points consumers care about most — price, customer service, policy features and savings opportunities — so you can feel confident about which provider is right for you. We guide you throughout your search and help you understand your coverage options. We provide up-to-date, reliable market information to help you make confident decisions. We reduce industry jargon so you get the clearest form of information possible. All providers discussed on our site are vetted based on the value they provide. And we constantly review our criteria to ensure we’re putting accuracy first. Bankrate logo Editorial integrity
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Coverage.com, LLC is a licensed insurance producer (NPN: 19966249). Coverage.com services are only available in . Coverage.com may not offer insurance coverage in all states or scenarios. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. If you are in the market for life insurance, you are probably comparing multiple policies, like term life and whole life, to see which one best fits your needs. Term life insurance and whole life insurance are two of the most common life insurance policy types, but they differ in a variety of ways. To help you figure out what type of life insurance is right for you and your family, we compared the differences between term life and whole life, and explained which one might be the better option for different circumstances. This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. The offers and clickable links that appear on this advertisement are from companies that compensate Homeinsurance.com LLC in different ways. The compensation received and other factors, such as your location, may impact what ads and links appear, and how, where, and in what order they appear. While we seek to provide a wide range of offers, we do not include every product or service that may be available to you as a consumer. We strive to keep our information accurate and up-to-date, but some information may not be current. Your actual offer terms from an advertiser may be different than the offer terms on this widget. All offers may be subject to additional terms and conditions of the advertiser. Compare life insurance providers quickly and easily
See which provider is right for you. The amount of coverage you need depends on many factors, including your age, income, mortgage and other debts and anticipated funeral expenses. Whole life insurance combines life insurance with an investment component. Coverage for life Tax-deferred savings benefit if premiums are paid 3 variations of permanent insurance: whole life, universal life and variable life include investment component Term life insurance is precisely what the name implies: an insurance policy that is good for a specific term of time. Fixed premium over term No savings benefits Outliving policy or policy cancellation results in no money back Find matches Powered by HomeInsurance.com (NPN: 8781838) This advertising widget is powered by HomeInsurance.com, a licensed insurance producer (NPN: 8781838) and a corporate affiliate of Bankrate. HomeInsurance.com LLC services are only available in states where it is licensed and insurance coverage through HomeInsurance.com may not be available in all states. All insurance products are governed by the terms in the applicable insurance policy, and all related decisions (such as approval for coverage, premiums, commissions and fees) and policy obligations are the sole responsibility of the underwriting insurer. The information on this site does not modify any insurance policy terms in any way. Bankrate Why Lemonade? It's a fresh twist on life insurance: easy, accessible and affordable. See more providers in Choose from insurers in Show More What is the difference between term and whole life insurance
There are two significant differences between term vs. whole life insurance: length that the policy is in effect and the cash value benefit. Term life insurance has a set limit of time for coverage while whole life insurance, which is known as permanent life insurance, remains in effect for your lifetime (as long as you pay your premiums). The premiums you pay for term life insurance go towards the death benefit you will leave to your beneficiaries. With whole life insurance, the premiums you pay go partly towards the death benefit, and partly towards a savings account component you can access while you are alive. Take a closer look at the features of each kind of policy: Whole Life Insurance
is a type of permanent insurance because it is designed to cover you from the time you purchase a policy, until you pass away. Whole life is a traditional form of life insurance that features a fixed premium rate and pays a fixed death benefit when you pass away. In addition, whole life insurance also features a cash value savings vehicle. Here are some important things to know about whole life policies: : Part of your premiums are set aside in a savings account, known as cash value. You have the option to withdraw or borrow the cash value while you are still living, and use the money for any purpose. However, the cash value is usually only accessible while you are alive and will not be included in your death benefit. Value to beneficiary: When the insured passes away, their designated beneficiary receives the entire face value (also called the death benefit), less any outstanding loan taken from the cash value. As noted above, any remaining cash value is typically not included in the death benefit. Payment schedules: Most insurers give the option to pay a whole life premium monthly, quarterly, semi-annually or annually. The policy covers you as long as you continue to pay the premium in most circumstances, and your coverage lapses if you stop making payments. Dividends: If you buy whole life insurance from a mutual company, you might be eligible to receive dividends, based on the company’s financial performance. Reinvesting these dividends can help your cash value grow more quickly. Prequalification: Depending on the policy, you may be expected to answer health questions about your medical history and you may be required to take a medical exam. Whole life insurance is generally more expensive vs term life because the policy covers you for as long as you live and includes cash value benefits. Policy features Pros Cons Cash value Borrow from or draw on the growing amount Must be paid back or will be deducted from the death benefit Payment schedule Monthly, quarterly, semi-annual, annual May be subject to additional fees for breaking up the payment throughout the year Value to beneficiary Face value paid to beneficiary regardless of age when you pass away (if over 18) Any outstanding loan against the cash value could reduce the death benefit amount Dividends Could earn dividends based on company’s financial performance Dividends are not guaranteed are only available from certain companies Prequalifications May not require a medical exam Coverage could be expensive depending on medical history Term Life Insurance
Term life insurance can be purchased for a set period of time, such as 30 years. When the term ends, your coverage ends, unless the policy is renewable or convertible. And if it is convertible or renewable, you will likely be required to trigger those options several months before your term ends. When comparing term vs whole life insurance, term coverage is generally less expensive. Consider the following factors that affect term life insurance. Terms and Medical Requirements: often pays a set face value and covers you for a specific period, typically ranging between five and 40 years. The 20-year term policy is the most common, according to the Insurance Information Institute. To get a term life policy, you may have to answer health questions or take a medical exam. Some policies feature a renewable option which allows you to renew the policy for another term on an annual basis, oftentimes without taking another medical exam, but the rate will be based on your current age and it’s likely you’ll be required to decide whether to renew well before your policy term ends. Age Limits: Many term life policies have an age limit, usually around 80. So, if you want to renew a 20-year policy at age 65, the insurer might only offer you a 15-year term to continue coverage. Premiums: Term base your premium on your health at the time of application or renewal, your age and your life expectancy. Term life insurance is much more affordable for people at a younger age and in good health than whole life. However, a common characteristic of term policies is increasing premiums as you age. Decreasing Term Policies: A term life policy can have a level or decreasing term. A decreasing term policy decreases the death benefit over the life of the term, usually at a . Many people choose a decreasing term policy to provide coverage for a mortgage. Convertible and Return-of-premium Term Policies: Some term life policies are convertible, allowing you to after a certain period without taking another medical exam. A policy with a pays back a portion of the money you paid after the term ends, but this privilege comes with much higher premiums. Policy features Pros Cons Terms and medical requirements Terms ranging from five to 40 years, usually involve medical questions but possibly able to skip medical exam Optional renewable term feature can be expensive, health history may require a medical exam Age limits Depends on company — usually cannot purchase after age 80 Seniors may not qualify for term and renewable options may be limited Premiums Much cheaper than whole life for same death benefit Health concerns could lead to higher premiums Decreasing term policies Provides coverage for a mortgage Premiums similar to term with decreasing death benefit Convertible and return-of-premium term policies Able to convert term to whole life or get a portion of premium returned after term expires Whole life is more expensive and uses current age when converting, return-of-premium is provided at higher costs Term vs whole life insurance
Whole life and term life policies have one major thing in common—they both pay a death benefit when you pass away. So, for example, if you have a $100,000 term life policy and you pass away during the term, your beneficiary will receive $100,000. Likewise, if you purchase a $100,000 whole life policy and continue to pay the premium until you die, that policy will pay $100,000. With both term life and whole life, the death benefit is typically distributed tax-free and can be used for any purpose. Why choose term life insurance Why choose whole life insurance Usually has cheaper premiums Cash value and potential for dividends Good health history could waive medical exam Good health history could waive medical exam Can typically purchase much higher death benefit amounts Eligible to take a loan against the cash value Flexible choice of terms Life-long coverage Age
Whole and term life policies also approach an in a similar way. With both types of life insurance, you will pay a lower premium if you purchase a policy while you are relatively young. If you wait until you are in your 60s, you will pay a much higher rate or may not qualify due to a medical condition. Duration
When comparing term versus whole life insurance, the two types of policies have a few significant differences. Term life only covers you for the length of the term, while whole life continues to cover you until the end of life under most circumstances. However, some term life policies can be continued after the term ends, if the policy is convertible or renewable, as long as you meet your policy’s deadlines for conversion or renewal. Prequalification
The process of prequalifying for a term life or whole life insurance policy depends on a few factors, including the insurance company’s underwriting process, your overall health and the amount of coverage you want. For either term life or whole life, you will need to submit some information about yourself in order for the insurance carrier to determine if you qualify. This might be an in-depth health questionnaire with information about your age, health history, family medical history, surgeries, and hobbies, an in-person or a phone interview with an agent from the life insurance company. Some life insurance companies make the prequalification process even easier, requiring just a few simple questions about your age, gender and overall health. However, keep in mind that term life and whole life policies that don’t require a medical exam are typically more expensive. If you are in relatively good health and can pass a medical exam, you will probably find that your premium will be much less expensive. Savings Benefits
The savings account feature of a whole life policy sets it apart from term life coverage. Whole life policies build cash value, whereas term life insurance does not. Some term life insurance policies include a return-of-premium rider, which allows you to recoup a portion of the premiums you paid, but not all policies have this feature. Which is better Term or whole life insurance
Choosing between term life vs whole life will depend on your goals and needs. Here are some things to consider when deciding which type of life insurance is right for you. Planning for your future
It’s important to choose a life insurance policy that aligns with your future financial needs and goals. To determine you might want to use a tool such as a to get a ballpark figure and consider consulting with a certified financial planner before you purchase the policy to ensure you are purchasing the right policy for you. Growth opportunity
If you are looking for a policy where your money will grow, a whole life insurance policy might be the best option. Most whole life insurance policies have cash value, which grows at a fixed interest rate, and can be withdrawn while you are still living. You can also find whole life policies that can potentially earn annual dividends, possibly increasing your cash value even more. Keep in mind that most cash value accounts will not be included in your death benefit. There are several other types of permanent life insurance that can grow your money, as well. Universal life policies work like whole life policies, but funds deposited into the cash value account earn money based on a money market interest rate. After your universal life policy matures, you can also alter the premium payments using your cash value. Variable life insurance policies also provide permanent coverage, while offering even more flexibility by enabling you to invest the savings portion of your policy in bonds, money market mutual funds or stocks. However, variable life policies can pose a greater risk because you could decrease your cash value and death benefit if your investment underperforms. Life stages
The best for you will also depend on your current stage of life. For instance, if you are young and want a low-cost policy, term life insurance might be a good choice. If you choose a flexible policy, like variable life, and invest well, you could see significant earnings by the time you retire. And, you can use term life policies for added protection during critical periods of your life. For instance, if you just sent your daughter off to college, you could buy a 5-year term policy to cover the cost of her education in case you pass away before she graduates. Frequently asked questions
What is a death benefit
The death benefit is the amount paid out to your named beneficiary after you die. It is the only benefit of a term life insurance policy, unless you purchase riders or additional features. Whole life insurance has a death benefit and cash value.
What is cash value
With a whole life policy, a portion of the premiums you pay goes towards the cash value, which essentially acts as a savings account. The money grows at a fixed interest rate, and you can make withdrawals or borrow from the balance while you are still living. In most instances, the cash value portion of your account will not be included in your death benefit.
Is whole or term life insurance more expensive
In general, whole life has than term life. However, many factors determine the , including your age, health and life expectancy. Regardless of whether you choose term or whole life coverage, rates will be lower if coverage is purchased when you are younger.
What happens if I outlive my term life insurance
Term life coverage expires when the term ends. If you , the only way to continue your coverage is if your policy is convertible or renewable and you have triggered the conversion or renewal based on your policy’s deadlines, which are typically several months before your term ends. With convertible term life, you have the option to convert your term policy into a permanent life insurance policy without taking a medical exam. Renewable term policies can be renewed on an annual basis, but your premium will increase with age. In addition, there’s usually a maximum renewal age, which means you likely can’t keep your term life insurance forever. SHARE: Elizabeth Rivelli is a contributing insurance writer for Bankrate and has years of experience writing for insurance domains such as The Simple Dollar, Coverage.com and NextAdvisor, among others Maggie Kempken is an insurance editor for Bankrate. She helps manage the creation of insurance content that meets the highest quality standards for accuracy and clarity to help Bankrate readers navigate complex information about home, auto and life insurance. She also focuses on ensuring that Bankrate’s insurance content represents and adheres to the Bankrate brand. Related Articles