Unboxing Term & Whole Life Insurance

Updated: Dec 8, 2019

The thought of buying life insurance is something most of us would like to put off till a much later time because it is complex in nature. We are going to take you on a deep dive into the details of the most basic life insurances that you need, namely term life insurance and whole life insurance. Both types have clear benefits and drawbacks. To decide between term or whole life insurance, it is important to first know how they differ and which is a better fit for your financial scenario.

What is Term Life Insurance?

Term life insurance is a simple straightforward life insurance where as long as the policyholder pays the premiums, he is covered. If he dies while the policy is in effect, the beneficiary receives the death benefit. The key definition when it comes to term life is the word term - how long the policy is active. Term life insurances expire after a set number of years, but they are flexible enough to be used as a short-term solution where you can add to your existing policies to increase your coverage.


Term life insurance is straightforward and policies are easy to understand, so you do not have to worry about hidden fees, exclusions or risks. Simply pick your ideal coverage time frame and amount of coverage. Term is the more affordable type of life insurance.


There is no cash value. When the policy expires, so will your coverage.

What is Whole Life Insurance?

Whole life insurance is a type of permanent life insurance, which stays in effect for as long as you pay the premiums. This means you never have to worry about not being insurable or losing your safety net as you get older. It is combining your insurance and investment all in one policy, acting as a forced savings vehicle. How it works is that, each month, a certain portion of your premium will go into a tax-deferred savings account, or the cash value of the policy. The policy's cash value grows over time. Your whole life policy may also pay out dividends similar to a traditional investing vehicle. You can also do many things with the cash value, including taking out a loan, drawing from it for retirement or funding the policy.


Whole life insurance does not expire, so you can keep it for as long as necessary. Useful as part of a customized personal finance or estate planning strategy, thanks to the cash value component. It works as a forced savings vehicle.


Whole life insurance is way more expensive than term insurance— costing sometimes up to six to 10 times as compared to term life insurance. The interest rate you actually receive on the cash value is likely less than you will get if you invested it in other ways. Whole life insurance is more complicated than term life insurance because the surrender value of the policy changes with time.

4 Key Distinctions between Term & Whole life insurance


Term: Can increase periodically or stay at a guaranteed level for the duration of the policy

Whole: Level

Guaranteed level term life insurance keeps premiums the same for the entire policy term, but renewable annual term life insurance must be renewed periodically with each time the premiums getting higher. Renewable annual policies are best for short coverage periods because premiums typically start low compared to guaranteed level premiums. Whole life insurance premiums on the other hand are level, meaning they stay the same no matter how long you have the policy.


Term: 1-30 years

Whole: For Life

Term life insurance last a set number of years decided on when you purchase the policy. Terms are between 1-30 years and usually come in increments of 5 years. This is ideal for most people because typically after a 30 year period in their lives, most people have fewer financial obligations. Their mortgage is paid off. Their kids have started working and moved out. Therefore, there is no need to keep paying for a policy they do not need.

Whole life insurance lasts for as long it is paid. The benefit is indefinite coverage. Meaning if you find yourself 30 years into the policy and realize you still need coverage, you do not need to worry about the policy expiring.

Guaranteed death benefit

Term: Yes

Whole: Yes

No matter what type of life insurance you choose, insurers cannot alter the death benefit. The death benefit is usually non-taxable, so your beneficiaries do not need to worry about receiving less due to taxes. Do note if you take out a loan on your whole life insurance and die while the loan is still active, the death benefit will be used to pay back the outstanding amount and then the balance goes to your beneficiaries.

Cash value

Term: No

Whole: Yes

Whole life insurance offers a guaranteed cash value while Term life insurance does not. Whole life insurance is basically a conservative investment option. All whole life policies can be surrendered for their current cash value after a certain number of years, at which point the insurer pays the accumulated cash value minus any loans and fees.

In conclusion, no matter what kind of life insurance you buy, make sure to shop around and compare quotes for the best rate. Everyone is different and each life insurers has its own methods for assessing applicants, so you may get a much cheaper rate with one insurer than another.

"Insurance is a form of backup. When your life is smooth sailing, you will need to prepare for the unexpected so you can have more options when your life is at a downfall.”

~ Jack Ma

Insuree editorial content is intended for informational purposes and should not be considered legal or financial advice. Consult a professional to learn what financial products are right for you.

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