Term or whole life insurance: which one fits you?

Term life, in plain words

Term insurance protects you for a specific term — a year, or a set number of years. It does not have a cash value, and you cannot cash it in. Once the term ends, the policy no longer covers you.

• Renewable means you can buy another term at a rate guaranteed in the policy, without new health questions. The renewed policy usually costs more, because you are older.
• Convertible means you can switch the term policy to cash value coverage for a limited time, without new health information, at the company’s rates at the time.

When you shop for term insurance, the Commissioner’s advice is to look for a policy that is both renewable and convertible.

Whole life, in plain words

Whole life — also called “ordinary life” or “straight life” — covers you for your entire lifetime. The premium depends on your age when you buy it and stays the same as you grow older, which is why buying younger costs less each month.

Part of your premium builds a cash value that grows at an interest rate the company sets. You can borrow against it; if a loan and its interest are not paid back, the company subtracts what you owe from the benefit your family receives. Some whole life policies let you finish paying sooner — in 15 years, or by age 65 — with higher premiums in exchange.

Side by side

Other kinds you may hear about

Universal life is a flexible cash value policy: you can vary your premium payments and make limited changes to the benefit. If your premiums and the interest credited fall short of the cost of insurance, the account shrinks — and if it keeps dropping, the coverage ends. Variable life puts the cash value into investment accounts, and you carry the investment risk.

Final expense insurance is a small policy meant to cover funeral costs — sometimes called a burial policy. If that is the need you are thinking about, see final expense insurance, and my funeral planning checklist for what to write down for your family.

How I would think about it

Before any price, two questions the Insurance Commissioner suggests asking yourself: what costs and hardships would my family have to deal with after I am gone? And how would losing my income affect them?

• If the answer is “a lot, for the next 15 or 20 years,” term life is usually the most coverage for the money.
• If the answer is “my family should never have to pay for my funeral or my last bills,” whatever year that happens, permanent coverage is built for that.
• Plenty of families use both: term for the working years, a smaller permanent policy for the rest.
• Whatever you choose, pick a premium you can keep paying for years. A policy you let lapse protects nobody.

Protections worth knowing

• Ten-day free look. Every new life insurance policy issued in Washington comes with a 10-day free look: if you are not satisfied, you can return it within 10 days of receiving it, and the company must refund your premium within 30 days.
• A 31-day grace period. In Washington, if you are late with a premium, your policy stays in effect for 31 days.
• Taxes. The IRS says life insurance proceeds a beneficiary receives because of the insured person’s death generally are not counted as income. Interest paid on those proceeds is taxable.
• It is not an investment. The Commissioner is direct about this: if anyone sells you life insurance as an investment with a high return, ask to see that guarantee in the contract.

Where I come in

I am an independent agent, so I can look at more than one company for you, by phone or video, in English or Spanish. We start with what your family would need, not with a product — and there is no cost for my help. More on how I help with life insurance.

Questions people ask

More guides