Term vs. whole life insurance: What’s the difference?
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If phrases like term, whole life, and permanent insurance all blend together for you, you're not alone. You likely know that life insurance will pay a death benefit to your beneficiaries if you pass away. But you may not be as clear about the difference between term life insurance and whole life insurance. This article can help by answering key questions about the differences between the two types of life insurance:
What is term life insurance?
A term life insurance policy provides coverage for a specific term or period of time, typically between ten and 30 years. It is sometimes called "pure life insurance" because, unlike whole life insurance, this policy has no cash value component — it's designed purely to give your beneficiaries a payout if you pass away during the term.
If you’re considering a term policy, you should also think about how your family’s protection needs to help protect your family, you should consider whether your family's need for life insurance will change before the term expires. For example, will your kids be grown up and on their own? Will your house be paid off? Will there still be some money that can provide stability for the surviving spouse?
Use our term life insurance cost calculator to estimate your monthly premiums.
What is whole life insurance?
Whole life is the simplest form of a permanent life insurance policy that provides coverage that lasts your entire life, as long as premiums are paid.1 Unlike term life, it’s not a "pure life insurance" product because it includes a cash value component.2 A portion of your premium dollars are placed in a cash account, where funds can grow over time on a tax-deferred basis, so you don’t pay taxes on the gains.3
Cash value provides many benefits that you can access while you’re still alive. Once it grows into a useful amount, you can borrow money against your policy’s cash value in the form of loans or withdrawals,4 use it to pay your premiums, or even surrender it for cash to help supplement your retirement income. While other types of life insurance also provide cash value. whole life is the simplest and most popular: The premiums remain the same for life. The policy’s death benefit is guaranteed, and cash value grows at a guaranteed rate.
Policies can also earn dividends
Mutual life insurance companies, such as Guardian, are actually owned by their whole life policyholders. That means these policies can also earn annual dividends (a portion of the life insurance company’s profits) that can increase your cash value and provide other benefits. While not guaranteed, Guardian has paid dividends to participating individual life policyholders every year since 1868.5
Key differences between term and whole life insurance
Both pay a death benefit to your beneficiaries, but a term life policy only covers you for a set period. By contrast, whole life offers permanent (lifelong) coverage as long as you pay premiums, plus a cash value component that accumulates funds over time.
The added value of whole life insurance — and the certainty that the insurer will eventually have to pay a death benefit — means that life insurance costs for whole life can be substantially higher than for a term policy.
Term Life Insurance | Whole Life Insurance | |
|---|---|---|
Coverage length/expiration | Preset, usually 10–30 years | Lasts your whole life (as long as you pay your premiums) |
Cash value/investment options | No cash value | Yes: Builds over time, at a fixed rate |
Underwriting process | May require a medical exam | Requires a medical exam |
Premium cost | Lower | Higher |
Makes sense for… | Temporary, cost-effectiveness coverage | Lifelong coverage that also helps build family assets |
Pros and cons of term vs whole life insurance
Type of Policy | Term Life | Whole Life |
|---|---|---|
Premiums | ||
Pros | Initially lower compared to whole life | Remains same over time |
Cons | Can rise substantially at renewal | Generally, less cost effective than term over the life of the policy |
Coverage term | ||
Pros | Customizable, typically 10 – 30 years; can often convert to a whole life policy later | Protection for life (as long as you pay premiums) |
Cons | May need to renew policy at a higher rate when term ends | Can’t choose a specific term |
Cash value | ||
Pros | Simplified coverage | Accumulates at a constant rate, tax-deferred, over time; can access while alive |
Cons | No cash value | Outstanding loan amounts will diminish the death benefit payout |
Estate planning | ||
Pros | Simplified coverage | Death benefit is paid out income tax-free and not subject to probate; Can be left to beneficiaries, placed in a trust, or donated to charity |
Cons | Not suitable for estate planning | High premiums if bought later in life |
Things to consider before you buy a whole or term life policy
Every person is unique, and the decision to buy a whole vs. a term policy should be guided by your specific situation and the things that matter to you, including:
Age and health
Your age (the younger you are, the less expensive the policy, generally speaking)
Your health (the better your health prospects, the less expensive the policy, generally speaking)
Your children’s ages (once they are grown and on their own, they may be able to secure their own income)
Long-term health expenses and the costs of serious illness (these influence the amount of insurance you need)
Financial obligations
Your family’s financial goals
The amount of your mortgage and other debts
Your plans for retirement
College plans for your children
How you will pay for funeral expenses
Estate planning
Estate planning and tax ramifications
If you will set up a trust as part of your will
If you want to leave part of your estate to charity
Existing insurance policies
Whether you have existing life insurance, perhaps through your employer, and the amount of the coverage
There may be a considerable cost difference between a term policy and a whole life policy at first, but remember: Whole life premiums stay the same over time, and term coverage generally increases with every renewal. Considering all the benefits that a whole policy can provide over the course of your life and the certainty of an eventual payout may represent a better overall value, depending on your situation.
Reasons to consider whole life insurance
You want lifelong coverage: Whole life insurance provides permanent coverage that spans your entire lifetime as long as premiums are paid. It can be suitable for end-of-life planning and can help cover expenses related to funerals and medical debt. It can also provide ongoing financial support for a spouse or dependent family member, or an inheritance to beneficiaries.
You can afford the higher premiums: Whole life insurance offers lifetime coverage and other key benefits but can cost you more than term life.
You want a policy that builds guaranteed cash value: Whole life insurance offers a cash value component that can grow on an income tax-deferred basis, which makes it a popular savings vehicle.
You have dependent family members: If you have dependent family members — particularly lifelong dependent family members, like a child or sibling with disabilities — whole life insurance can offer significant protection. You can use life insurance to fund a trust to provide care for your dependent family member.
You want the option to borrow against the cash value of the policy: Once you've paid a certain amount into the policy through premiums, you may be able to make a withdrawal or take out a loan against the policy. This can offer financial flexibility later in life but may lower the death benefit if not repaid.
Cost of whole life insurance vs. term life insurance
Many factors contribute to the cost of a life insurance policy — some you can’t control, others you can. The policy type (term or permanent), age, health, gender, driving record, occupation, hobbies, and the amount your loved ones would receive all contribute to the cost. By learning what may impact your premiums before you get a life insurance policy quote, you can better understand your options when choosing what’s best for you and your family. Here are examples of potential costs by age and gender for $500,000 term and whole life coverage.
Average $500,000 policy cost: 20-year term vs. whole life insurance
For preferred nonsmoking applicants in good health
Age* | Term life | Term life | Whole life | Whole life |
|---|---|---|---|---|
Men | Women | Men | Women | |
30 | $221 | $187 | $4,311 | $3,959 |
40 | $334 | $282 | $6,387 | $5,860 |
50 | $819 | $642 | $10,069 | $14,635 |
60 | $2,357 | $1,656 | $16,698 | $14,635 |
70 | $9,436 | $7,994 | $29,302 | $25,631 |
Source: Covr Financial Technologies, accessed through NerdWallet. Lowest three rates for each age averaged. Data valid as of April 29, 2025.
What if you already have one type of policy but want another?
No matter which kind of policy you have, you may be able to access the benefits of the other type of coverage. Here’s how:
Convert your term policy into a whole life policy: Many life insurance companies, including Guardian, allow this for at least the first few years of coverage. It can be an excellent way to continue your life insurance protection and build cash value for you to borrow against.
Buy a term policy to help supplement your whole life coverage: If you want an added level of protection — for example, to supplement coverage until your children finish college — a term life policy can be a helpful addition to your permanent cash value whole life coverage.
Alternatives to term and whole life insurance
Term and whole life insurance are the most common types of life insurance. There are, however, some life insurance alternatives you might want to consider:
Universal life insurance, like whole life insurance, is a type of permanent life insurance. Unlike whole life insurance, you can raise or lower premiums within certain limits.6 This may make it easier to afford during times of financial stress, but it can also affect cash value growth. Equally important, the total death benefit payout may decline if you make too many minimum premium payments.
One more note: With indexed universal life insurance, you can allot a portion of your cash value to a stock market index, giving you the potential for higher returns.7
Variable universal life insurance (VUL) is a type of universal life insurance that offers permanent protection as long as premiums are paid,8 premium flexibility, and the ability to invest in market securities through sub-accounts. This may provide the potential for greater gains, as long as you are willing to accept the risk of investment losses, which could impact your overall cash value or death payout.
Annuities are insurance contracts you can purchase with a lump sum or regular premium payments.9 In return for your investment, you’ll receive a regular income stream, which can start immediately or at a later date, when you are closer to retirement. As with cash value life insurance, the funds invested in an annuity grow tax-deferred.
Annuities can pay you for a set period or for your entire lifetime. Many people purchase annuities to help ensure that they will have a consistent income stream through retirement. Others want to help ensure that their beneficiaries will have a consistent income stream in the event of their death.
So, which type of policy should you buy?
The truth is, there are many things to consider besides the type of life insurance policy you get.
How much coverage do you need?
What policy options (or riders) are available?10
Is there other coverage you need to protect your family?
Which is better for your situation, a whole life or term policy?
Both term and permanent life insurance can be powerful financial tools to help protect your family and lifestyle, but every individual’s situation is unique. If you need help deciding, you should discuss your needs and circumstances with a qualified financial professional who understands life insurance. If you don't know such a person, ask friends or colleagues for a recommendation. Or, Guardian can connect you to a Financial Professional who can help and provide an insurance quote based on your specific needs.
Or consider asking about coverage through work
Your employer may provide life insurance as a benefit, or you may opt to pay for additional life insurance through payroll deductions. Taking advantage of your benefits at work can be a smart and cost-effective way to get financial security for yourself and your family. Consider contacting your HR department to review your plan details and determine how much life insurance may be available to you.