Term or Whole Life Insurance?

If you are in the market for life insurance, you have probably heard the terms “whole” and “term” being tossed around. All policies are not the same, and understanding the differences between each type of insurance will help you make the right choices.

life insurance

Once you’ve decided which insurance is right for you, you’ll be in a position to start shopping around. A comparison service like comparethemarket.com will search through hundreds of quotes from insurers, so it’s important to know what you’re looking for.

Term Insurance

Term life insurance is exactly what it says it is. It is life insurance for a certain term of your life. What this means is that you are insured as long as you pay your insurance payment, also referred to as the premium. Your premium depends on your age, health and other determining factors. You can think of term insurance like renting insurance. As long as you pay, you are covered.

In term insurance your benefactors will receive a payout in the event of your death. The amount they receive also figures into the calculation of your premium.

Whole Insurance

In whole life insurance, you are the owner of your insurance policy. Just like in term insurance, you still have a lump sum paid out when you die. The big difference though is that your payments, or premiums, go into an account that you own and have access to. This account grows with interest, and you can even borrow against the account. Whole life accounts also enjoy tax free growth until payouts are made.

If you don’t ever withdraw from your whole life plan, your benefactors will receive a death benefit and the cash value of the savings accumulated in the whole life account.

Term Life Insurance Pros and Cons

There are a lot of arguments floating around out there about which type of plan is better. The answer is: it depends.

For example, if you are looking for coverage at the lowest cost possible, then term life insurance is your best bet. This is the lowest amount you can pay to be covered. One thing to remember is that once you stop paying you are not covered. This might be fine if you have savings elsewhere. If you are counting on a payout in the event of your death, however, you have to be covered until the day you die. In this case you might face paying premiums for a long time, perhaps much longer than you expected.

If you expect your beneficiaries to be fully independent upon your death, or if you have other investments that you plan to bequeath, then term life is probably the best choice.

Whole Life Insurance Pros and Cons

Whole life insurance has a drawback in that the first 1-3 years your premiums go towards paying the costs of the plan. Once you have “bought in” your payments go into a special account that grows tax free. Some say that this type of investing is not attractive, but many have been taking a second look at this vehicle in light of current economic instability. These insurance accounts are typically very conservative and stable. Plus, you get tax free growth.

Another advantage of whole life plans is that you can manage them. Let’s say that you have a sudden unexpected expense, like an illness or accident. You can withdraw money from your whole life policy on the spot. You can even borrow against your plan and pay it back later with interest paid to you. Nevertheless, there are costs involved which you should ask about before you plunge into a whole life insurance plan.

There is a special circumstance where whole life plans win hands down. This is when you have a handicapped dependent. In this case you want to leave as much as possible to your beneficiary, and therefore you want your life insurance to pay out no matter what upon your death. Some consider their spouse in this circumstance as funeral costs can be high these days (although it is possible to get financial help if your partner is on a low income).


The best way to decide what type of insurance is best for you is to identify your goals. Do you absolutely need coverage when you die? How strong are your other investments? What are your investment goals and expectations?

This article contains a guide to buying life insurance, if you fully understand your options and you consider the differences between whole and term life insurance carefully, you will make the best choice for you and your loved ones.