Term vs Whole Life
Whole life costs many times more for the same cover. The question is whether its cash value beats simply buying the cheap cover and investing the difference. This does that arithmetic.
Buying term leaves you ahead by
-
- Monthly difference
- $0
- Investing that difference builds
- $0
- Whole life cash value
- $0
- Term costs over the years
- $0
- Whole life costs over the years
- $0
What each policy costs
The taller bar costs more over the whole period. Cheaper is not automatically right, but choosing the dearer one should be deliberate.
Move it and watch
-
at {v} for amount of cover
And what you can change
Why your own figure may differ
How the gap grows
The invested difference compounds. That is the entire argument, and it needs time to work.
| After | Paid into whole life | Paid into term | Difference invested |
|---|
The difference between the two premiums is invested every month and compounds. Term wins when that pot beats the whole life cash value. It needs you to genuinely invest the difference - if you would spend it, set the return to zero and see what happens.
Term vs whole life insurance: real examples
Three comparisons. Click any card to load it.
- The usual gap
$500,000 of cover for 20 years
Term at $40 a month, whole life at $400.
Investing the $360 difference at 7% builds $182,713. far more than the cash value on most whole life policies.
Load this scenario in the calculator → - Over a lifetime
The same policies over 40 years
Twice as long to compound.
The invested difference reaches $889,755. Time is what makes the cheap option win, and it wins by more the longer it runs.
Load this scenario in the calculator → - If you spend it
Not investing the difference
The same policies, nothing invested.
Whole life wins. The whole argument for term depends on actually investing the difference - be honest about whether you would.
Load this scenario in the calculator →
Common questions about term vs whole life insurance
What is the difference?
Term insurance covers you for a set number of years and pays out only if you die within them. Whole life covers you until you die whenever that is, and builds a cash value inside it. Whole life costs many times more for the same cover, which is the whole comparison.
Why is whole life so much dearer?
Because it is certain to pay out eventually, and because part of your premium goes into the cash value and the costs of running it. Term is cheap precisely because most policies expire without paying anything.
What does "buy term and invest the difference" mean?
Buy the cheap cover, then invest what you would have spent on the expensive one. This tool does that arithmetic. Over long periods the invested difference usually beats the cash value comfortably - but only if you genuinely invest it rather than spend it.
Is whole life ever the right answer?
Sometimes. If you need cover that will certainly pay out - for estate planning, a lifelong dependant, or a business arrangement - term does not do that job at any price. It is a poor investment and a real insurance product; problems come from buying it as the former.
What length of term should I choose?
Long enough to cover the years people actually depend on you. Until the mortgage is paid and the children are independent is the usual answer. Cover you no longer need is money wasted; cover that runs out too early is the thing you were insuring against.
What should I watch out for?
Ask what the cash value would be if you cancelled in the first few years - it is often nothing at all. Ask how much of your premium buys cover and how much goes elsewhere. A policy that cannot answer those plainly is telling you something.