How to Compare Term vs. Whole Life Insurance Rates & Quotes Online

Purchasing life insurance is essential if you have a family to support. It’s the best way to ensure that your spouse and children – and any other dependents – have the money they need to pay their expenses in the event that something happens to you.

At Addition Financial, we believe in providing our members with the tools and information they need to make smart decisions about life insurance. One thing that our members often ask us is this:

“What is the difference between term and whole life insurance?”

Before you obtain life insurance quotes online and purchase a policy, you should understand how to compare quotes and coverage. It can be tricky to compare different types of insurance because the coverage and benefits are different. In other words, the choice you make depends on your personal financial circumstances, stage of life and why you want life insurance. Here’s what you need to know.

What is Term Life Insurance?

Term life insurance is a life insurance coverage that exists for a specified period and pays benefits only if the policyholder dies before the term expires. For example, you might buy a term life insurance policy with a term of 20 years or 30 years. People who have young children often opt for term life insurance to provide for their dependents in the event of their accidental death.

Term life insurance rates are generally less expensive than whole life insurance rates, something we’ll review in detail later in this post. Most term life insurance policies are “level term” policies, meaning that the death benefit remains the same throughout the term. Others have a payout that decreases each year.

Some term life policies allow policyholders to add a “return of premium” feature that refunds some or all of the premium payment to them if they do not die within the term, but this option comes at a higher price than simple term life insurance.

We should also note that in most cases, policyholders with term life insurance policies can convert their policies to whole life insurance at the end of the term for a higher fixed premium. In some cases, the cost of conversion may be higher than what they would pay if they had opted for whole life insurance from the start.

What is Whole Life Insurance?

Whole life insurance differs from term life insurance in that it covers you for your entire life. That means there is no expiration date. Your premium is based on the death benefit, which will remain the same unless you increase or decrease your coverage. It is for this reason that whole life insurance is sometimes called permanent life insurance.

Whole life insurance policies allow policyholders to accrue a tax-deferred cash value. The value is determined by calculating the premiums paid and subtracting expenses incurred by the insurance company. If you buy a whole life policy, you can borrow against the accrued cash value.

While the premiums for whole life are typically higher than they are for term life insurance, a whole life policy is permanent life insurance. The coverage will remain in place provided you pay your premiums. You may even have the option to pay your premiums over a shorter term – in other words, you can trade higher premiums for a shorter payment period.

Which is Better, Term or Whole Life Insurance?

Both term life insurance and whole life insurance have their benefits, but which option is better for you? Let’s review the pros and cons, starting with term life insurance:

  • Pro: Premiums are lower than for a whole life insurance policy, particularly if you buy a policy when you’re young.
  • Pro: The payout may be higher than it would be for whole life insurance.
  • Pro: You can convert a term life policy to whole life at the end of the term.
  • Con: Term life policies accrue no cash value.
  • Con: You must requalify for a new policy at the end of the term.
  • Con: Requalification may be difficult if you have a serious health condition, since a medical exam is required.
  • Con: Coverage is temporary.

You should be sure to consider the pros and cons before you buy a term life policy. You may save money in the short term but have less protection in the long term unless you’re willing to absorb a significant increase in your premium to convert your policy to whole life insurance.

Now, let’s look at the pros and cons of whole life insurance:

  • Pro: The premium amount is fixed, meaning you will pay the same premium as long as the policy is in effect.
  • Pro: You will accrue tax-deferred cash value over time, which you can borrow against if you need money.
  • Pro: It’s easier to qualify for whole life insurance because there is no medical exam requirement as there is for term life.
  • Con: The monthly premium for a whole life insurance policy is typically significantly higher than the premium for a term life policy.
  • Con: In many cases, the death benefit for whole life insurance is lower than it is for term life.

Making a choice between whole life and term life insurance requires careful evaluation of the pros and cons and an understanding of how each type of coverage works.

How to Compare Term and Whole Life Insurance Rates & Quotes

Now that you understand the key differences between term life insurance and whole life insurance, let’s talk about how to compare life insurance company rates and quotes online. It’s easy to get quotes from several carriers but your comparison should go beyond comparing premiums to ensure that you understand the coverage you’re buying and how it will impact your beneficiaries when you die.

Here are the things you should review and compare:

  1. Monthly premiums. The premiums for term life insurance will be considerably lower than for whole life. For example, a 30-year-old woman might pay less than $30 per month for term life and ten times that amount for a whole life policy. 
  2. Length of term and life expectancy. Many term life insurance policies offer coverage for 20 or 30 years. If you’re young and there’s a limited chance you could die within the term, it might make sense to opt for the less expensive option.
  3. Long-term financial goals. Some people want to have life insurance to protect them until they retire or until their kids are out of school. However, people who want to fund a trust or engage in estate planning may be better off with whole life insurance.
  4. Ability to borrow. If you want to use your life insurance policy as a way to accrue money that you can borrow as needed, then the higher premium for a whole life insurance policy may be worthwhile.

With other types of insurance, we would recommend that you make an apples-to-apples comparison with identical deductibles and coverage levels. Comparing term and whole life insurance is more like comparing apples and bananas. They do different things and serve different purposes. Your personal needs and budget will determine which type of life insurance you choose.

Life Insurance Comparison Chart

Who Should Consider Whole Life Insurance?

When should you consider whole life insurance? Here are some circumstances when it might make sense to opt for higher premiums for permanent life insurance:

  • You want life insurance that builds cash value that you can use for emergencies or big purchases.
  • You can comfortably afford the high monthly premiums without putting yourself at financial risk.
  • You want to accumulate wealth to leave to your children or other heirs when you die.
  • You have a dependent who will require lifelong care and you want to provide for them financially. (You can use the death benefit to fund a revocable trust to pay for their care.)
  • You have a medical condition or family medical history that might make it difficult to qualify for term life insurance.

We don’t recommend paying the high premium for whole life insurance if doing so will cause you to blow through your monthly budget and leave you without money for necessities. 

Who Should Consider Term Life Insurance?

Now, let’s review when it might make sense to opt for term life insurance instead of whole life insurance:

  • You are young and healthy and unlikely to die, but want to provide for your spouse or children in the event of your early death.
  • You want short-term life insurance to cover you until you are ready to retire or until your children are grown and out of the house.
  • You don’t want to use your life insurance policy as an investment or savings vehicle.
  • You may want permanent life insurance later in life but you can’t afford the high monthly premiums for whole life insurance now.

Term life insurance offers an affordable way to protect your spouse and dependents, ensuring that they won’t be left to fend for themselves if you die unexpectedly. Provided you are young and healthy, it’s easy to get the coverage you need for a small monthly premium.

Choosing between term life insurance and whole life insurance requires understanding of the differences in coverage and death benefits, together with an evaluation of your personal financial circumstances and needs. The information we have included here will help you compare your options and make the best choice for you and your family.

Do you need an account to help you pay for your expenses in retirement and provide money for your heirs? Click here to read about Addition Financial’s retirement account options!

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.