Term Vs. Whole Life Insurance

Term insurance has a set expiration date, while whole life does not.

Term insurance has a set expiration date, while whole life does not.

Life insurance is available in a number of types of policies. The two main categories of life insurance are term and whole life. While both types of policies provide a death benefit for your heirs, they have a number of significant differences. Understanding these differences will help you decide which policy is best for you.

Length of Coverage

Term insurance is temporary life insurance. When you buy a term policy, it has a set expiration date. For example, a five-year term policy will last no more than five years. If you die during this period, your heirs receive the policy death benefit. If you outlive the time period, your contract expires and you are no longer covered. Whole life insurance is permanent life insurance. It does not have an expiration date and is designed to last your entire life.


Whole life insurance is much more expensive than term life insurance. Because term policies have an expiration date, most contracts expire without paying out a death benefit. Life insurance companies can offer term policies cheaply because they rarely need to pay out a claim. The only way a whole life policy avoids paying a death benefit is if the owner cancels his insurance. Whole life policies pay out death benefits more frequently, so insurance companies need to charge more to recoup their expenses.

Cash Value

When you buy term insurance, you only receive life insurance coverage. You don't get any living benefit from owning a term policy. When you buy whole life insurance, the policy builds cash value overtime. This is money that you can take out of your contract and spend while you're alive. The insurance company lets you borrow this money because it knows that if you die, your whole life policy will pay off the loan. You can use a whole life policy as a savings account as well as for insurance protection.


Term insurance and whole life insurance serve two very different purposes. Term insurance is better for temporary needs. It is a good choice when you have young children. You need coverage to protect them while they are growing up but they won't need the money once they're adults. Term insurance lets you buy a lot of short-term coverage at a low cost. Whole life insurance is better for needs that never end. A common use for whole life insurance is as a burial policy. Since everyone dies, this need never goes away. By buying a small whole life policy, you make sure your funeral costs are covered for your heirs.


About the Author

David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.

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