Term Life vs. Whole Life Insurance Comparison

Clifford PendellWritten by Clifford Pendell, Managing Partner and Co-founder

Essentially there are two types of life insurance, term life and whole life insurance.

Term life insurance is not permanent. These policies offer a fixed amount of coverage for a set period of time, usually 10 to 30 years.

Whole life insurance comes in many forms, but the most common policies provide a fixed amount of coverage for your entire life.

In this guide to term life vs whole life insurance, we've outlined the differences between term and traditional whole life insurance. We've also explained some of the other types of permanent or whole life insurance policies available.

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What is Term Life Insurance?

Financial advisors usually recommend term life insurance to their clients because it is the most affordable form of life insurance coverage available. It offers guaranteed level premiums for a set period of years, also known a “term.” Term policies are usually sold in 5-year increments for 10 to 30 years.

Term life insurance is typically purchased to protect specific life events like paying off the mortgage or leaving your loved ones with a source of replacement income if you are no longer around to provide for them. It is not designed to provide lifetime protection. 

The most common initial terms are:

  • 10 years
  • 15 years
  • 20 years
  • 25 years
  • and 30 years

*A few providers offer 35 and 40 year terms before the age of 45. 

Most people will outlive their policy, but this is why term life insurance costs a fraction of what a whole life insurance policy does. Instead of spending hundreds of dollars on whole life insurance, you can purchase a term policy and invest your savings, also known as, "Buy term and invest the rest."

This strategy allows the policyholder to become self-insured earlier in life, eliminating their need for whole life insurance when their term expires. If you have ample savings, no debt, and dependents; you don't need to worry about carrying a significant amount of life insurance coverage. 

Selecting the Right Term for your Needs

When purchasing a policy, be sure to select a term extends beyond the life events you want to protect. For example, if you have 24 years left on your mortage, a 25-year term is best. While purchasing a 20-year term might save you a few dollars a month, it also will leave your loved ones without ample coverage for at least 4 years.

By the end of your term, you should surpass the life events you need to protect, reducing or eliminating your need for life insurance. If circumstances change, and you still need a large amount of coverage after your term expires, most life insurance providers will allow you to keep your current policy on an “annual renewable” basis for an increased cost.

Some insurance companies also offer a conversion option which allows the policyholder to covert their existing term policy into permanent coverage. Oftentimes this is the best choice for someone that is terminally ill or no longer eligible for a new policy. However, you must take advantage of this benefit before your term expires. Most policies also have a conversion age limit.

More Information on Term Policy Conversions:

Approximately 90% of our clients buy term coverage, but we also offer whole life insurance from dozens of highly-rated providers. Give us a call to discuss your needs today at 855-247-9555 or request an instant quote using the form below. 

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What is Whole Life Insurance?

There are many forms of whole life insurance designed to offer lifetime protection. The most common is traditional whole life insurance. Traditional whole life insurance policies are usually endorsed by celebrities like Alex Trebek and they offer up to $50,000 of coverage with fixed premiums for your entire life.

These policies do not require an exam for approval and they can be purchased over the phone or online in a few minutes. The downside to traditional whole life insurance is that it does not offer enough coverage for most situations and it is relatively expensive when compared to other forms of whole life insurance.

Traditional whole life insurance is for retirees that need to set aside a small amount of money for burial expenses, not a family breadwinner with young dependents. If you need more than $50,000 of whole life insurance for estate tax planning, funding a trust, or maximizing a pension, you'll want to avoid traditional whole life insurance. 

To instantly compare quotes for whole life insurance, enter your information in the form below and you'll be able to view rates from dozens of providers in less than a minute. If you need more than $50,000 of coverage for the rest of your life, you'll need to consider a different type of whole life insurance

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If you need more than $50,000 of whole life insurance, universal life insurance is going to be your best option. While term and whole life insurance are simple and easy to understand, this is not always the case with universal life insurance. While one type of universal life insurance works just like traditional whole life insurance, the others offer no guarantees and carry investment risk.

What is Universal Life Insurance?

Universal life insurance is offered as an alternative to term or whole life insurance because it can provide a large amount of coverage for your entire lifetime. There are many forms of universal life insurance, so its important to understand the type of policy you're buying before you apply. The most common types of universal life insurance are:

  • Guaranteed Universal Life 
  • Traditional Universal Life 
  • Indexed Universal Life 

Guaranteed Universal Life

We only recommend guaranteed universal life insurance because it offers the best benefits of term and whole life insurance. With guaranteed universal life or a GUL, your coverage and cost are guaranteed not to change until the age of 90 or later. GUL policies can be customized to extend to age 90, 95, 100, 110, or 121 depending on your life expectancy. 

Most GUL policies offer a minimum of $50,000 in coverage and they do not require any investment risk. This allows guaranteed universal life insurance policies to be less expensive than other forms of non-guaranteed universal life insurance, and they offer flexibilty because most companies will allow you to reduce your coverage if needed.

Experienced financial advisors always recommend guaranteed universal life insurance until the age of 100 or later for estate planning, leaving a large inheritance, or funding a trust. A non-guaranteed policy can become underfunded in unfavorable market conditions which is too much risk for a seasoned financial advisor to overlook. 

To learn more about GULs and the benefits they can offer, please see our article, "What is Guaranteed Universal Life Insurance?" You can also request an instant quote using the form below. In less than a minute you'll be able to compare real quotes from dozens of leading life insurance providers. 

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Traditional and Indexed Universal Life

Traditional universal life insurance has a bad name and for good reason. These policies arose to prominence in the early 1980's when interest rates were at an all-time high. After interest rates declined and remained low, many policies became underfunded, forcing policyholders to let their policy lapse or pay vast sums to keep their coverage active.

After many consumers became weary of traditional universal life insurance, indexed universal life insurance became a popular alternative in 1997. Indexed universal life insurance policies or IULs are tied to an index like the S&P 500 or the Dow 30 (DJI). If the index does well, so will your investment. But, if the market performs poorly, you could lose your investment and your life insurance protection. 

While IUL policies may seem safer than traditional universal life insurance coverage, they also carry some investment risk. Despite these concerns, many IULs continue to be oversold by agents that tend to focus on a policy's potential rate of growth rather than it's guaranteed rate of return. Like other prominent financial advisors, we believe your investments and life insurance should always be separate. 

Term vs Whole Which is Best?

The type of life insurance you decide to buy should be based on your needs and budget. Term life insurance provides $50,000 or more in coverage for up to 40 years depending on your age. These policies are less expensive than whole life insurance, but they do not provide lifetime coverage. They are designed to protect major life events like paying off the mortgage or providing an income to your family if you are no longer around. 

There are two types of whole life insurance worth considering. Traditional whole life insurance offers up to $50,000 of lifetime coverage without a medical exam. These policies are relatively expensive compared to other forms of life insurance, but they are very easy to purchase. If you need more than $50,000 of lifetime coverage, a guaranteed universal life insurance is always the safest option.

Getting a Life Insurance Quote

Whether your life insurance needs are temporary or permanent, be sure to purchase a policy that offers guaranteed coverage and fixed rates. Avoid any product that seems to good to be true and always read the fine print. Our licensed agents offer at least 10 years of experience, and we're here to answer all your questions about term life vs whole life insurance. Toll-free: 855-247-9555.  

For an instant traditional whole life insurance quote for up to $50,000 of coverage, click here. If you need more than $50,000 of whole life insurance coverage with guaranteed rates until age 90 or later, select the "lifetime" option from the form below. You can also instantly compare term life insurance rates from more than 63 providers in less than a minute. 

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Clifford Pendell

Clifford Pendell

Managing Partner and Co-founder

Cliff is a licensed life insurance agent and one of the owners of JRC Insurance Group. He has helped thousands of families of businesses with their life insurance needs since 2012 and specializes with applicants who are less than perfect health. In his spare time he enjoys spending time with family, traveling, and the great outdoors.

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