Term vs Whole Life Simplified:

Term life insurance

  • Term life insurance only lasts for an established period, and the death benefit is paid to the beneficiaries after the policyholder’s death
  • A term life policy doesn’t have a cash value component
  • Insurance companies usually offer terms ranging from 10- to 30-year, with some offering 1- to 5- year renewable policies
  • When the term ends, the policy lapses and the policyholder is no longer covered
  • Term life policies tend to have lower annual premiums than whole life policies, being a good option if you’re looking to buy life insurance for less

Whole life insurance

  • A whole life policy includes a death benefit and a cash value component (an investment feature of a permanent policy that can earn interest and grow.)
  • Whole life policies are permanent, and the policy lapses when the policyholder doesn’t pay the premiums or has obtained a loan that surpasses the cash value
  • You can use the cash value to cover premium payments or borrow it (like a loan) for emergencies
  • Any outstanding loans taken from the cash value will decrease the policy’s death benefit
  • The loans have to be paid back, usually with interest
  • Permanent policyholders might receive annual dividends (extra funds life insurance companies return to their policyholders at the end of each year.)