What’s the difference between term and whole life insurance?
Term life
Cheaper: Term life is generally the cheapest type of life insurance.
Temporary: Policies last for a set time period, such as 10, 20 or 30 years.
No cash value: You can’t borrow against or cash out a term life insurance policy.
Best for: Affordable coverage you only need for a specific time period.
Whole life
Pricier: Whole life is significantly more expensive than term life insurance.
Permanent: Policies can last the rest of your life.
Builds cash value: Policies grow in cash value at a guaranteed rate, and you might be able to cash out or borrow against that cash.
Best for: Permanent coverage that functions as a savings vehicle, as long as you can afford to pay the premiums for life.
» MORE: Best life insurance companies
Term life vs. whole life insurance: Overview
To better understand the difference between term life and whole life, here’s a quick rundown on how each type of coverage works.
Term life insurance
Term life insurance is simple: It covers you for a fixed period of time, such as 10, 20 or 30 years, and pays out if you die during the term. If you outlive the term and your coverage ends, your beneficiaries won’t receive any money from the policy.
The monthly premium and death benefit are typically guaranteed for the policy’s term. You want your life insurance to last as long as the longest financial obligation you’re covering. If you're a new parent, you might buy a 20-year policy to cover you until your child is financially independent. Or if you just bought a home, you might want a 30-year policy to cover your mortgage.
» MORE: Compare life insurance quotes
Whole life insurance
Whole life insurance is the most common type of permanent life insurance. It costs more than term life because it typically offers lifelong coverage. The premium and death benefit stay the same.
Whole life insurance also has a cash value component. A portion of your premium goes toward the cash value, which grows over time at a fixed rate. Once you’ve built up enough cash value, you can borrow against it or surrender the policy for cash — but doing so could shrink or eliminate your death benefit.
Many whole life policies are “participating,” which means you may earn dividends based on the financial performance of the mutual life insurance company that sold the policy. You can use your dividends in a few different ways, including boosting your policy’s cash value.
» MORE: Is whole life a good investment?
Cost of whole life insurance vs. term life insurance
Term life is often the most affordable life insurance because it’s temporary and has no cash value. Whole life premiums are much higher because the coverage is designed to last a lifetime, and the policy grows cash value.
Average annual rates for term life vs. whole life
These sample life insurance rates reflect the average annual premiums a non-smoker in excellent health would pay for $500,000 in coverage for both term and whole life policies.
| Age and gender | 20-year term policy | Whole life policy |
|---|---|---|
| 20-year-old woman | $176 | $2,260 |
| 20-year-old man | $212 | $2,548 |
| 30-year-old woman | $184 | $3,292 |
| 30-year-old man | $215 | $3,662 |
| 40-year-old woman | $280 | $4,967 |
| 40-year-old man | $330 | $5,524 |
| 50-year-old woman | $640 | $7,782 |
| 50-year-old man | $815 | $8,749 |
| 60-year-old woman | $1,650 | $12,670 |
| 60-year-old man | $2,342 | $14,517 |
| 70-year-old woman | $7,785 | $21,766 |
| 70-year-old man | $10,968 | $24,797 |
| Source: LifeStein.com. Lowest three rates for each age averaged. Data valid as of Feb. 17, 2026, and rates are subject to change. | ||
Nerdy Perspective
Both term and permanent life insurance are part of my personal strategy. Term life insurance is relatively cheap, so I have plenty of coverage. I’m not worried about what happens when the policy ends — by then no one will be depending on me for financial support, so I won’t need that coverage anymore. I also have a small permanent policy, which can pay final expenses.
How to choose between term and whole life insurance
Term life is sufficient for most people, but whole life and other forms of permanent coverage can be useful in certain situations.
Choose term life if you:
- Want the most affordable coverage. Term life insurance is the least expensive option, especially if you’re young and healthy.
- Only want coverage for a specific period of time. A term life policy can replace your income if you die while you still have major financial obligations, such as raising children or paying off your mortgage.
- Think you might want permanent life insurance but can’t afford it right now. You may be able to convert your term life policy to permanent coverage at a later date. The deadline for conversion varies by policy, and not all policies offer conversion, so be sure to check the fine print.
- Don’t want to use life insurance to accumulate a cash value. Buying a cheaper term life policy lets you save what you would have paid for a whole life policy, and perhaps invest the money elsewhere.
Choose whole life if you:
- Can comfortably afford the higher premiums. Whole life insurance is a lifelong commitment, so you want to make sure you can afford it. If you miss your premium payments, your policy could lapse.
- Want coverage that essentially lasts your lifetime. The death benefit from whole life policies typically pays out whenever you die. If you name beneficiaries on your policy, the payout will go directly to them and not through your estate.
- Have a lifelong dependent like a child with disabilities. Life insurance can fund a trust to provide care for your child after you’re gone. Consult with an attorney and financial advisor before setting up a trust.
- Want life insurance that builds predictable cash value. The cash value of whole life policies grows at a guaranteed rate set by the insurer.
Still not sure whether you need life insurance? Use our tool below.
Alternatives to term and whole life insurance
If you need lifelong coverage but want more flexibility than whole life provides, consider other types of permanent life insurance:
These other options often have varying costs and features depending on the type of coverage you buy and the performance of your cash value. That can lead to great savings or to unexpected expenses.
As always, discussing your individual needs with a fee-only life insurance consultant is a great first step.
Frequently Asked Questions
What happens to term life insurance at the end of the term?
Term life insurance policies are temporary, which means your coverage expires once your term is up. If you still need life insurance, you can purchase a new policy, though you can expect to pay higher rates.
There are cases where your term life coverage may continue, such as if you convert to a permanent life insurance policy before the deadline set by your insurer.
Why is term life insurance cheaper than whole life?
Term life insurance tends to be cheaper than whole life because it offers temporary rather than lifelong coverage and doesn’t build cash value.
Does term life insurance build cash value?
No, term life insurance doesn’t have a cash value. If you want a policy that builds value over time, look into permanent life insurance.
Which is better, whole or term life insurance?
Generally, term life insurance is sufficient for most people. But you might want to explore whole life insurance if you’ve maxed out your tax-advantaged retirement accounts or if you have a lifelong dependent, such as a child with special needs.
What are the main differences between term and whole life insurance?
Term life insurance is more affordable, but it's temporary. It offers coverage for a set number of years, like 10, 15 or 20, and pays out a death benefit if the policyholder dies during that period. Whole life insurance typically lasts your whole life and has an added cash value component that earns interest over time, but it can be much more expensive than term life.
