Whole vs. term life insurance: How to decide what's right for you

Life insurance costs vary widely depending on the circumstances and type of coverage you have, but certain types of permanent life insurance policies may offer more benefits than term coverage.  (iStock)

Life insurance is a way to protect your beneficiaries from falling behind financially in the event of your untimely death. But depending on the type of policy you take out, life insurance can do much more than provide a theoretical financial safety net. For example, whole life insurance provides a guaranteed cash payout that you may be able to tap into while you're still alive. 

But whole life insurance is much more expensive than traditional term life insurance, which simply grants a death benefit to your loved ones if you die during the set term. Term and whole life insurance come with their own benefits and drawbacks, and the type of policy you need depends on how you plan on using it.

Keep reading to learn more about the differences between term and whole life insurance. If you're ready to begin shopping around for life insurance, you can compare whole and term life insurance quotes for free on Credible's online marketplace.


What is term life insurance?

Term insurance is a traditional type of life insurance in which the policyholder pays in premiums for a set period of time. If they die before the end of the term, then the beneficiary receives the death benefit payout from the life insurance company. 

  • Duration: Up to 30 years
  • Cost: $25 to $35 per month
  • Death benefit: Yes
  • Cash value: No

The primary goal of a term policy is to keep your loved ones financially protected in the event of your untimely death. A term life policy will help your beneficiaries cover funeral costs, stay current on your mortgage, pay off any debts in your name and cover living expenses without your income. By the time your term expires, you would in theory have fewer financial obligations and less of a need to support your beneficiaries if you were to pass away. 

Term life insurance premiums offer relatively affordable coverage but they may change over the course of your policy. Whether or not your premiums will rise depends on the type of term life insurance policy you have. 

You can shop around for term life insurance policies and compare coverage on Credible. 


What is whole life insurance?

Whole life insurance is a life insurance policy that lasts your entire life, and as a result, it can be much more expensive. Whole life insurance and other types of permanent life insurance can cost up to 15 times more than term life insurance, according to 2021 Policygenius data. But whole life insurance has the benefit of a guaranteed cash value that you can tap into while you're still alive, which makes it more of an investment than term life insurance. 

  • Duration: Your lifetime
  • Cost: $20 to $240 per month
  • Death benefit: Yes
  • Cash value: Yes

Similar to term life insurance, you would only pay premiums on a whole life insurance policy for a set period of time or up until a certain age. The difference is that you're able to retain the value of a whole life insurance policy after you're done making payments.

Whole life insurance premiums are much higher than term life insurance premiums but they typically stay level throughout the policy. The cash value of a whole life insurance policy earns interest at a low, predetermined rate. It's not the most lucrative type of investment but it comes with a guaranteed payout compared with a term life insurance policy.

Keep in mind that if you withdraw from the policy early, you run the risk of surrendering the policy's cash value. 

You can compare whole life insurance policies and get free quotes on Credible to see if this option is a good fit for your budget. 


How to decide between term and whole life insurance

A term life insurance policy is sufficient for most consumers who simply want to protect their loved ones from financial trouble in the event of their untimely death. By the time your policy expires, you would theoretically have an alternative way of supporting your beneficiaries in the event of your death.

Whole life insurance comes with higher premiums but it's treated more like an investment due to the fact that the policyholder can build cash value. While the return on a whole life insurance policy isn't significant, it can be a worthwhile choice as long as you can continue paying the premium throughout the duration of the payment period. The cash value of a whole life insurance policy is commonly used by policyholders to pay for an estate tax upon their death, for example. 

If you're unsure of which type of life insurance coverage you need, visit Credible to get in touch with a life insurance agent who can help you choose the best option for your financial situation.


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