Life Insurance: Term vs. Whole
Life insurance is one of the most important financial protections you can have — but choosing between term and whole life can be confusing. These two products serve different purposes and cost dramatically different amounts.
What Is Term Life Insurance?
Term life provides coverage for a specific period — typically 10, 20, or 30 years. If you die during the term, your beneficiaries receive the death benefit. If the term expires, coverage ends. Think of it like renting protection.
Term Life Pros
- Significantly cheaper (often 5-15x less for the same death benefit)
- Simple and easy to understand
- Customizable term lengths to match your needs
- Ideal for covering specific obligations (mortgage, children's education)
Term Life Cons
- No cash value or savings component
- Coverage expires — renewal rates are much higher
- You may outlive the policy
What Is Whole Life Insurance?
Whole life provides permanent coverage that lasts your entire life. Part of your premium goes toward a cash value component that grows at a guaranteed rate. Think of it like buying — you build equity.
Whole Life Pros
- Lifetime coverage — never expires
- Cash value grows tax-deferred
- Guaranteed death benefit for heirs
- Can borrow against cash value
- Fixed premiums that never increase
Whole Life Cons
- Much more expensive — $300-500/month vs. $30-50 for term on a $500,000 policy
- Cash value grows slowly in early years
- Complex with non-transparent fees
- Investment component typically underperforms independent investing
How Much Coverage Do You Need?
A common rule is 10-15 times your annual income. Consider your mortgage, debts, childcare and education costs, income replacement needs, and final expenses.
Who Should Choose Term?
Most people. Term is right if you want the most coverage for the lowest cost, have time-limited needs, are disciplined about investing savings elsewhere, or are young and healthy.
Who Should Choose Whole?
Whole life makes sense if you've maxed out all other tax-advantaged accounts, want a guaranteed inheritance, have estate planning needs, or want permanent coverage regardless of future health changes.
The "Buy Term and Invest the Difference" Strategy
Buy cheaper term insurance and invest the premium savings in index funds. Over 20-30 years, investment returns typically far exceed whole life's cash value growth. This requires discipline — you must actually invest the difference.
The Bottom Line
For the vast majority of families, term life insurance provides the right protection at an affordable price. Get a 20-30 year term, invest separately for wealth building, and revisit coverage every few years.
