Amy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Written By Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Amy Danise Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive.
Managing Editor, Insurance Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
Ashlee Valentine Deputy Editor, InsuranceAshlee is an insurance editor, journalist and business professional with an MBA and more than 17 years of hands-on experience in both business and personal finance. She is passionate about empowering others to protect life's most important assets. Wh.
| Deputy Editor, Insurance
Updated: Aug 21, 2024, 8:24am
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Life insurance policy types can be put into two main buckets: term life and cash value life insurance. One of the choices for cash value life insurance is whole life insurance.
Knowing the main differences between term vs. whole life insurance will help you zero in on the best life insurance for you.
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On Ethos Life's Website10, 15, 20, 30 years
There are a few main differences between term life insurance and whole life insurance.
Both level term life and whole life insurance have fixed premiums. That means your premium payments won’t change. Life insurance companies generally offer payment plan choices, such as monthly, quarterly, semi-annually and annually.
If lifelong bills for whole life insurance aren’t appealing, some policies offer shorter payment schedules with larger payments, such as single premium life insurance, or policies with payments for a certain number of years, such as 10 years. This allows you to have more budget flexibility later in life.
Term life insurance has a specified term length, such as 20 years. Many term life policies allow you to renew after the level term ends, but the renewal rates are usually very expensive.
Whole life insurance is permanent life insurance intended to last a lifetime and is generally active through age 95 or 102.
Whole life and term life policies have a payout called the death benefit. The death benefit is guaranteed with both types of policies. A death benefit is paid tax-free to the life insurance beneficiaries you have listed.
The main difference is that coverage ends with a term life policy if you don’t renew it every year after the level term period ends. If you outlive your term life policy and don’t renew it, there is no death benefit ever paid.
Term life insurance builds no cash value while whole life policies contain a cash value account that builds over time at a fixed earnings rate.
This guaranteed cash value growth in a whole life insurance policy is one of the reasons whole life is considerably more expensive than term life.
The policyholder can take money from the available cash value. You can take a loan against it and pay for anything you want. Or take out money as a withdrawal that you won’t pay back. The outstanding loan or withdrawal amount is deducted from the death benefit.
If you’re looking for lifelong coverage without the high cost that a whole life insurance policy demands, consider guaranteed universal life insurance.
While you do your best to anticipate financial needs many years down the road, you may no longer need life insurance.
If you don’t tell your insurer that you want to surrender your life insurance policy, the insurer will likely use any cash value in the whole life policy to continue paying the premiums on your behalf until the cash value is depleted. Instead of walking away, contact the insurer and take the surrender value, which is the cash value minus any surrender charge.
Term life insurance is a contract between the policyholder and life insurance company. It says the insurer will pay a certain amount to the policyholder’s beneficiaries if the insured person passes away.
People buying term life insurance must decide on the length of the level term and the coverage amount.
Term life insurance policies come in multiple types:
Whole life insurance is a form of cash value life insurance that remains in place as long as you make your payments.
There’s a cash value component that accrues over time. You can access your cash value through a withdrawal or loan, or you could surrender the policy and walk away with the cash value (minus any surrender charge).
It’s impossible to make an apples-to-apples cost comparison of term life vs. whole life insurance because the policy features are so different.
Whether you decide to buy term or whole life insurance, your life insurance quotes will be affected by:
Whole life insurance is significantly more expensive than term life insurance.
Source: Forbes Advisor research. Rates are based on non-smoking buyers who are in excellent health. Term life insurance averages are for 20-year term life. We averaged the cheapest quotes we found online.
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When choosing between term life and whole life insurance, consider your reasons for buying a policy. If you want life insurance to replace your salary for the 15 years until your youngest child leaves for college, you don’t need the hefty expense of whole life insurance. Term life insurance is a much cheaper option if you need coverage for a set number of years.
Term life insurance may be a good fit if:
Whole life insurance may be a good fit if:
Years after buying life insurance, you might find that the policy you picked is no longer the best for your needs. It happens. Finances and life’s circumstances evolve. There are potentially ways to reverse course without buying a new policy.
Term life insurance policies often include a term life conversion option that allows you to convert the policy to a permanent life insurance policy. There’s a deadline for doing this, so check your policy for the conversion period. Your life insurance may have a few choices of permanent life insurance for the conversion. Or it may offer only one conversion option, and it might not be a whole life insurance policy.
If you’ve built up cash value within a whole life policy, you can ask your insurer if you can use the cash value to switch to a term life policy that’s paid up and end the whole life policy. Your life insurance company will be able to tell you the length of the new term life policy based on the money in your cash value account.
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There are life insurance options beyond whole life and term life.
Guaranteed universal life (GUL) insurance is the lowest risk universal life policy and is typically the cheapest type of universal life insurance. Guaranteed universal life insurance provides a level death benefit and your premiums don’t change. But GUL policies also generally build minimal cash value.
GUL policies don’t allow you to adjust premiums, which is typically an option in other types of universal life insurance policies.
An indexed universal life insurance policy bases cash value growth on gains connected to an index, such as the S&P 500. It offers more flexibility than GUL insurance by allowing you to adjust premiums and death benefits, within limits.
Indexed universal life insurance generally has high policy fees and charges. These charges reduce the amount of money going toward your cash value.
A variable universal life insurance policy links your cash value to sub-accounts that contain stocks, bonds and fixed interest rate options. You can adjust premiums and death benefits, which is similar to indexed universal life.
You’ll need to take an active role in deciding on the investments when you have a variable universal life insurance policy. Your decisions on your sub-accounts affect your cash value gains and losses
Also called final expense and funeral insurance, burial insurance is generally a whole life insurance policy with a relatively small death benefit meant to pay for final expenses.
These policies are typically guaranteed issue life insurance, which means you can’t be turned down and there’s no life insurance medical exam.
Burial insurance policies are more expensive than other types of coverage but can be the only option for older life insurance buyers who are in poor health.
Employers may offer life insurance to employees at low or no costs. These group policies are usually connected to your employment, so you lose coverage if you leave your job.
Supplemental life insurance policies usually have death benefits (such as a small multiple of your annual salary) and generally shouldn’t be your sole life insurance coverage. But they can be a nice way to supplement your own individual life insurance.
Helping You Make Smart Insurance DecisionsGet Forbes Advisor’s ratings of the best insurance companies and helpful information on how to find the best travel, auto, home, health, life, pet, and small business coverage for your needs.
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Term life insurance is a better choice if you’re looking for an affordable life insurance option to provide a financial safety net for a specific number of years, such as your working years until retirement. Whole life insurance is considerably more expensive, but if you can afford the higher premiums you’ll have lifelong coverage, fixed premiums for the life of the policy and a cash value component.
Fixed premiums expire at the end of a term life insurance policy’s level term period, such as 20 years. After that, you can generally renew the policy but at a higher rate each year. If you still need coverage, you may be better off buying a new life insurance policy rather than paying very high term life renewal rates.
You can have more than one life insurance policy, and in some cases, it makes sense to have more than one policy. For example, you might buy a whole life policy for mainly funeral expenses and also buy a 30-year term life insurance policy that would serve as income replacement if you pass away during your working years. Buying different life insurance policies for various purposes is known as laddering life insurance. A financial advisor can help you decide whether you might want to ladder life insurance.
If you have a specific debt, such as a mortgage, that you want to be covered if you pass away, have children and want to make sure their college tuition is covered or want life insurance to cover a certain period of time, term life insurance may be a better choice than whole life insurance. If you have a larger budget for life insurance and want lifelong coverage with the benefit of cash value, whole life insurance is a better option.
If your whole life policy includes a long-term care rider, or you’ve added one, long-term care may be covered. This life insurance rider lets you take money from the death benefit of your policy to pay for long-term care.
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Managing Editor, InsuranceAmy Danise is the managing editor for the insurance section at Forbes Advisor, which encompasses auto, home, renters, life, pet, travel, health and small business insurance. She is a highly experienced editor, writer and team leader with an extensive background in the insurance sector. With a career spanning more than three decades, she has focused her work on consumer-oriented publications.
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