Differences Between Whole & Term Life Insurance

by Deborah L. Alexander

Overview

Life insurance is a necessary part of most people's financial plan. There are several types of life insurance available. Two of the most popular are term insurance and whole life insurance.
Cost

Term insurance is the cheapest type of life insurance available for healthy, young adults. As you get older, the cost of term insurance increases with your age. Whole life insurance is more expensive to begin with, but the cost does not increase with age.

Duration

As the name implies, term insurance is coverage for a specific period of time--the term of the policy. You can buy term coverage for one year, five years, 10 years or longer. At the end of the term, coverage ends. Whole life insurance is designed to cover you for your whole life, no matter how long you live.
Cash Value

Term insurance does not accumulate cash value. The premium you pay covers the cost of the insurance and nothing more. Whole life insurance will accumulate a cash value that builds in the policy and can be used, after time, to reduce your premium payments or increase the face amount of the policy.
Underwriting

When you purchase life insurance, the insurance company will review your health to determine what premium it will charge you. Because term insurance has a definite point when coverage ends, it is sometimes easier to qualify for good rates.
Choosing Term or Whole Life

Term insurance is best when you want to cover a risk that will end at some point. For example, you may want to have additional insurance that covers you for the duration of your mortgage. Whole life insurance is best for providing a death benefit that you want to have available no matter when you die.

Overview