Term vs whole life insurance

By Allstate

Last updated: January 1

Choosing a life insurance policy that will work for you and your family can be a challenge. We’re here to help you understand the key differences between term and whole life insurance, and give you some guidance on how to choose one or the other.

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Term life insurance

Term life insurance is a type of policy that has a defined start and end date. Term life only pays if the insured person dies during the term of the insurance policy.

Term life insurance benefits

The main benefit of term life insurance is that it tends to be less expensive than whole life insurance. It may also be eligible to be converted to a whole life insurance policy if you choose to do so. On the other hand, your age and any emergency health issues can make it more difficult to qualify for a renewal once your term life insurance policy ends. These policies tend to be more “straightforward”, with a set number of years, and they don’t have investing or savings benefits.

  • Typically less expensive
  • Easier to understand than whole life policies
  • May be eligible to convert to a whole life policy

Other considerations

The main thing to keep in mind about term life insurance is that it’s temporary. That may or may not be right for your circumstances, based on the health and age of the insured individual. Changes in your health or age may also impact your ability to renew your term life insurance policy if it lapses. There are also no wealth-generating or tax-planning strategies to these types of policies.

  • You only have coverage for a set amount of years
  • These policies cannot be used for wealth-building

Whole life insurance

Whole life insurance is a permanent life insurance policy. If you maintain it, it’ll go on until the insured person passes away. The premium is consistent, and there’s no need to requalify. Whole life insurance policies also accrue tax-deferred cash value. You can borrow against this value in a financial strategy sometimes called infinite banking. Some whole life policies may even pay regular dividends.

Whole life insurance benefits

The primary benefit of a whole life insurance policy is that it’s permanent, and it provides the policyholder with lasting security as long as they maintain their policy. Premiums don’t change, and there isn’t a need to requalify. Additionally, whole life insurance provides policyholders greater liquidity, potential tax advantages and asset protections.

  • Lasts until death
  • The premiums do not change
  • There’s no need to requalify
  • Builds tax-deferred cash value

Other considerations

While whole life insurance provides long-term protection, it’s also a lifelong commitment. If you’re interested in purchasing whole life insurance, be sure to find a policy with premiums you’re confident you can afford, no matter how life circumstances may change. Premiums for whole life insurance policies also tend to be higher than term life policies and death benefits tend to be lower.

  • Typically more expensive
  • Payouts to the beneficiaries tend to be lower
  • A whole life insurance policy is a long-term commitment

Choosing between term vs whole life insurance

This table will help you compare each policy type side-by-side to help you better understand what policy features you may be interested in.

Policy feature Term life insurance Whole life insurance
Policy length Fixed Indefinite
Builds cash value No Yes
Lifelong coverage No Yes
Possible dividends No Yes
Death benefit guaranteed Yes Yes
Lower premiums (cost) Yes No

Term vs whole life insurance FAQs