Term vs whole life insurance: Which to choose? – Updated 2024

Most of us understand that life insurance is an important tool to protect your family and meet your needs. But not many people know that there are two different types — or understand the difference between term versus whole life insurance.

Choosing the right one can make a big difference in the kind of protection you give your family. We provide a handy cheat sheet to help you decide in this article.

What’s the difference between term versus whole life insurance?

The biggest differences between term life insurance and whole life insurance are:

• Term life insurance lasts for a set number of years and is more affordable coverage
• Whole life insurance lasts for your entire life, has a built-in investment component that builds cash value, and costs more

Let’s look at quick definitions of each type.

What is term life insurance?

Term life insurance is a type of insurance that covers you for a specific period of time, usually 10-30 years. If you pass away during that term, your family or whoever you name as a “beneficiary” gets a set amount of money called a “death benefit” from the insurance company.

What is whole life insurance?

Whole life insurance is a type of insurance that covers you for the rest of your life. Most also build something called “cash value” that you can access during your life to help you save more money. And, some can also pay you dividends every year.

What are the different features of whole life insurance versus term life insurance policies?

We’ve talked about the biggest differences, but the chart below goes into more detail about the different key features between term vs whole life insurance.

Is it easier to apply for term vs whole life insurance?

In general, it’s easier to get a term policy than a whole one. This is another difference in term and whole life insurance that makes a lot of Canadians choose term instead — it tends to be affordable, simple to understand, and easy to get.

The application process for whole life policies may ask more questions or be more strict about medical questions. This is because the insurance company takes on more risk with this kind of policy, so they need to make sure it’s worth it for them.

Should I choose term or whole life insurance?

Choosing between term versus whole life insurance comes down to your personal situation and needs. We generally say:

🗓️ Term life may be best if:

• You have temporary, short-term needs like covering mortgage payments, funding future college fees for your children, or covering other life expenses
• You’re on a tight budget — term is the most affordable type of life insurance
•  Your needs are simple, and you only want it to cover a few specific things if you unexpectedly pass away
• You’re still deciding, but you want your loved ones to be covered while you make up your mind

⏳ Whole life may be best if:

• You have permanent, long-term needs like covering end-of-life costs, funeral expenses, or leaving an inheritance to your loved ones
• You want insurance for life coverage — whole life lets you pay early and be covered for life, so you don’t have to worry about it later on
• You want to have the same rates all your life, instead of having to face an increase if you renew later on
• You want built-in investments that you can use now to help you build cash growth for the future
• You want a guaranteed death benefit that will make sure your loved ones get the money no matter what
• Your budget isn’t so strict, and you’d rather invest in tomorrow than save today

Are there any alternatives to term and whole life insurance?

• Universal life insurance: Offers lifelong coverage like whole life but with added flexibility, allowing you to adjust or skip premium payments and modify the death benefit
• Variable life insurance: Provides lifelong coverage and a guaranteed death benefit. The cash value grows based on your chosen investments, making it riskier and costlier
• Indexed universal life insurance (IUL): A type of universal life insurance where the cash value grows based on the performance of a specific stock index. It carries higher risks similar to variable life insurance
• 1-year term life insurance: Designed for short-term needs, such as between jobs, offering affordable coverage while you explore long-term insurance options

Can I change between term and whole life?

It depends on the kind of policy you have. In general:

Term life policies

• Most are convertible
• You can change them into a whole life policy — or into any kind of permanent life insurance

Whole life policies

• Are not convertible
• You cannot change them into any other type of policy, including term life
• In some cases, and depending on your provider, you may be able to use your cash value to buy a term life policy and cancel your existing whole life coverage

Can I get both term life and whole life insurance?

Yes, you can get both types of insurance for life coverage at the same time if you need to. You may buy both intentionally. Or, you may find that you have both through group coverage — such as buying a whole life policy for yourself and having term life coverage through your job.

But, it depends on your needs and your financial situation. You may not necessarily need both types of coverage at the same time.

Do I need both term and whole insurance?

Again, it depends. You do not necessarily need a term coverage if you already have whole life. But, as we saw in the example above, you might need both if you plan on using them for different purposes. It really just depends on you and your family.

Is whole life or term life insurance better?

Whichever policy meets your needs and protects your family is the better one for you. The difference in whole life and term life insurance will matter more based on what you specifically need it for. In general:

But, this is not always the case! And, waiting until later in life to buy insurance can also make your premiums more expensive. It’s best to speak with a licensed insurance advisor to find out whether a term policy or a whole life policy would be better for you.