Term vs whole life insurance
Term life covers a set period at a lower cost; whole life is permanent, builds cash value and costs more.
Sourced from official pages · Updated September 30, 2026💡 Key takeaways
- Term life covers a set period at generally lower premiums; whole life lasts for life and builds cash value at higher premiums.
- Term suits temporary needs such as a mortgage or raising children.
- Estimate your need by adding income replacement, debts, future costs and final expenses, then subtracting savings and existing coverage.
- Compare quotes for the same coverage and check the insurer’s financial strength.
The two main types
| Term life | Whole (permanent) life | |
|---|---|---|
| Coverage period | A set term, commonly 1, 5, 10 or 20 years (and longer) | For life, as long as premiums are paid |
| Premiums | Generally lower in the early years | Higher than term |
| Cash value | None | Builds cash value you can borrow against or withdraw, with conditions |
| Best for | Covering a temporary need such as a mortgage or raising children | A lasting need, or when you want the savings feature |
How much do you need?
Life insurance replaces income and pays debts if you die. A common approach adds up the income your family would need to replace, debts to pay off, future costs such as education and final expenses, then subtracts existing savings and coverage. Try the life insurance needs calculator.
Before you buy
- Compare quotes from several insurers for the same coverage.
- Check the insurer’s financial strength and your state insurance department’s complaint information.
- Understand any exclusions and the free-look period.
Common uses
- Term: replace income while children are young, cover a mortgage or protect a spouse for a defined period.
- Whole life: lifetime needs such as leaving an inheritance or covering final expenses, if premiums fit your budget.
Steps to buy
- Estimate the amount you need with the life insurance needs calculator.
- Decide on the term length.
- Get quotes from several insurers (disclose health information accurately).
- Read exclusions and the free-look period.
- Name beneficiaries and review them after life events.
🔤 Key terms
| Term | Meaning |
|---|---|
| Death benefit | Amount paid to beneficiaries |
| Beneficiary | Person or entity who receives the benefit |
| Cash value | Savings component in permanent policies |
| Underwriting | Insurer’s review of your health and risk |
| Free-look period | Time after purchase to cancel for a refund |
🧮 Example (hypothetical): estimating coverage
A parent earning $60,000 wants to replace 10 years of income ($600,000), pay off $20,000 of debts and a $250,000 mortgage, fund $60,000 of future education and $15,000 of final expenses. That is $945,000. Subtracting $50,000 of savings and $100,000 of existing coverage leaves a need of about $795,000. Try your own figures in the calculator.
⚠️ Common mistakes to avoid
- Buying whole life when a lower-cost term policy meets the need.
- Underestimating how long the need lasts.
- Forgetting to name or update beneficiaries.
- Not disclosing health information accurately.
🛠️ Try it yourself
❓ Frequently asked questions
How long a term should I pick?
Match it to how long people depend on your income, such as until children are independent or the mortgage is paid.
Does whole life build cash value?
Yes, with conditions; you can borrow against or withdraw it.
Should I use my employer’s life insurance only?
It may not be enough or portable; compare with your calculated need.
Can I convert term to whole life?
Some term policies allow conversion; check the policy.
📚 Sources
This guide is general information, not financial, tax or legal advice. Rules and limits change; confirm with the sources above or a licensed professional.