Term vs. Whole Life Insurance: Which Do You Need?

If anyone depends on your income, such as a spouse, children or a business partner, life insurance can keep them financially secure if you die.

Term life insurance

Term life pays a death benefit if you die during the term, typically 10, 20 or 30 years. If you outlive the term, coverage ends.

• Pros: Much lower premiums, simple, matches temporary needs like a mortgage or raising kids.
• Cons: No cash value; renewing later is expensive.

Whole life insurance

Whole life (a type of permanent insurance) lasts your entire life as long as premiums are paid. Part of each premium builds cash value you can borrow against.

• Pros: Lifelong coverage, cash value, fixed premiums.
• Cons: Premiums are often many times higher than term for the same death benefit; cash value grows slowly, especially early on; fees and commissions can be high.

Which is right for you?

For most families, term life provides the protection they need at a price they can afford. A common approach is “buy term and invest the difference,” putting the money you save into retirement accounts.

Permanent life insurance may fit people with lifelong dependents, such as a child with special needs, or certain estate-planning situations. Talk to a fee-only financial planner before buying it.

How much coverage?

One way to estimate it is to add up:

• Debts, including your mortgage
• Years of income your family would need replaced
• Future costs like college
• Final expenses

Then subtract savings and existing coverage. Coverage through work is often one or two times your salary, and usually ends if you leave the job.

Tips to pay less

• Buy younger and healthier; rates rise with age.
• Compare quotes from several insurers.
• Choose the term that matches your longest need, such as until your youngest child finishes school.
• Ask whether a medical exam could lower your rate compared with no-exam policies.