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Term vs whole life insurance: Which to choose? – Updated 2024
There are some key differences between term versus whole life insurance. Term life insurance protects you for a certain number of years. Whole life insurance protects you for your whole life and generates cash value. Term life insurance is usually more affordable but whole life insurance has value you can access now.
- What's the difference between term versus whole life insurance?
- What are the different features of whole vs term life policies?
- How does the cost compare between whole life vs term life?
- Is it easier to apply for term vs whole life insurance?
- Should I choose term or whole life insurance?
- Are there any alternatives to whole and term life insurance?
- Is whole life or term life insurance better?
- Frequently asked questions about term versus whole life insurance
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.
Call 1-888-601-9980 to speak to our licensed advisors right away, or book some time with them below.
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.
Term life insurance pros and cons
| Pros | Cons |
|---|---|
| Simple to understand | Coverage is temporary |
| Low costs for the first term | Death benefit is not guaranteed — you can outlive your policy |
| Can be converted into whole life insurance | Premiums increase if you renew your policy for another term |
| Price stays the same for the entire term (Guaranteed Level Premiums) | No investment or cash value component |
| Flexible — you can tailor your term to fit specific short-term needs | Cannot borrow or cash in on the policy |
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.
Whole life insurance pros and cons
| Pros | Cons |
|---|---|
| Permanent coverage — never expires | Premiums can be expensive |
| Price stays the same for the entire term (Guaranteed Level Premiums) | Investment returns may not be as large as with other investments |
| Savings component — cash value accumulation and annual dividend payments | |
| Can borrow or cash in on the policy |
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.
Term versus whole life insurance: key differences
| Term life insurance | Whole life insurance |
|---|---|
| Temporary coverage for a fixed time period e.g. 10 years, 20 years, 25 years | Guaranteed lifelong coverage |
| Best suited for temporary needs (mortgage, children’s education, lifestyle protection) | Best suited for permanent needs (estate planning, retirement income, final expenses) |
| Premium payments only stay the same until the end of the term | Premium payments stay the same for life |
| Low premiums for the initial term | Higher premiums because of lifetime coverage and savings component |
| Death benefit but no cash value component | Death benefit and access to a growing cash value |
| Pay premiums for life | Options to pay off premiums early |
| Death benefit stays the same | Death benefit may increase with dividends |
| Loans/withdrawals cannot be taken against term life policies | Policy loans can be taken and dividend payments may be withdrawn |
| Death benefit only paid out on policy holder’s death | Benefits can be accessed as dividends or loans during policy holder’s lifetime |
| Death benefit payout not guaranteed — you can outlive your policy | Guaranteed death benefit payout |
| Can be converted into permanent policies | Does not need to be converted |
| Will lapse is premiums unpaid for 30 days | Will continue to be in force as long as cash value can cover premium |
How does the cost compare between whole life vs term life?
Term life policies normally costs a lot less than whole life. This is because it usually doesn’t last as long and doesn’t have extra features like cash value and dividends. But life insurance costs differ for everyone, because it depends on your personal info.
The chart below compares you how much a man or woman might pay in monthly premiums for a term (20 years) versus whole life insurance policy for $250,000 in coverage.
Average term and whole life insurance rates for smokers and non-smokers
| Age Group | Term Life – Nonsmokers | Term Life – Smokers | Whole Life – Nonsmokers | Whole Life – Smokers |
| Male / Female | Male / Female | Male / Female | Male / Female | |
| 25-34 | $15 / $13 | $30 / $25 | $275 / $250 | $350 / $300 |
| 35-44 | $20 / $18 | $45 / $35 | $350 / $300 | $475 / $400 |
| 45-54 | $50 / $40 | $100 / $80 | $500 / $425 | $700 / $575 |
| 55-64 | $100 / $80 | $180 / $150 | $750 / $625 | $1,100 / $900 |
| 65+ | $200 / $150 | $350 / $300 | $1,200 / $1,000 | $1,800 / $1,500 |
*Representative values based on average monthly costs of term and whole life premiums from Canada’s best life insurance companies.
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
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
Life Insurance Tip
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.
Frequently asked questions about term versus whole life insurance
Term life policies tend to be the cheapest type of coverage compared to permanent life insurance policies like whole life because:
- Short length — They are temporary, and do not have lifelong coverage
- No investments — They do not build cash value growth or pay out dividends
- No collateral leverage — They cannot be used as a loan, to borrow against, for collateral, cashed out, etc.
- Lower risk — There is no guaranteed death benefit because the insured person can outlive their policy, and this is less risky for the insurance company
- High flexibility — They’re very simple and straightforward, without a lot of bells and whistles
In general, the most common type of insurance policy for Canadian seniors is whole life insurance. They give seniors life assurance that they can leave something behind for loved ones, and plus gives them the benefit of cash value growth.
But, there is no hard-and-fast rule that whole life insurance is better for seniors in EVERY case. The best policy for you really depends on your life and insurance needs.
Most of Canada’s biggest life insurance companies offer both term and whole life. This includes many of the ones we work with, like:
- Assumption Life
- Beneva
- BMO Insurance
- Canada Life
- Canada Protection Plan
- Empire Life
- Equitable Life
- Foresters Financial
- Industrial Alliance
- RBC Insurance
- Sun Life
- Wawanesa
Check out our insurance reviews before you make a decision on a certain company. And be sure to compare the best life insurance quotes from each company right here on PolicyAdvisor.com.
Or schedule a call with one of our advisors who can give you expert tips and help you determine which company would be best for you.
Both term and whole life insurance are great types of life insurance coverage that can give you peace of mind in knowing that your family has future financial protection. We would not suggest you “avoid” either.
All types of policies have pros and cons. You should speak with an experience advisor for professional advice.
- Term life is the more affordable options, and is usually chosen by younger Canadians with temporary needs (raising minor children, covering mortgage)
- Whole life can be expensive but provides lifelong protection, guaranteed level life insurance premiums, and a cash value component
- You can speak to PolicyAdvisor agents to help find out whether term vs whole life insurance would be the best fit for you and your family
