Updated October 2026. General information for US readers, not personalized financial, tax, insurance or legal advice.
Life insurance pays money to the people you name if you die. The two main types are term life and permanent (cash value) life insurance, which includes whole life. They’re built for different goals, and the price difference can be large.
Key takeaways
- Term life covers a set period, such as 10 or 20 years, and is designed to be lower-cost coverage.
- Whole life is permanent and builds cash value, but costs more.
- Choose based on how long people depend on your income.
- Don’t cancel an existing policy until a new one is in place.
What Is Term Life Insurance?
Term life insurance covers you for a set period, like 10 or 20 years. If you die during the term, your beneficiaries receive the death benefit. The National Association of Insurance Commissioners describes it as designed to provide lower-cost coverage for a specific period (NAIC).
Some term policies can be renewed when the term ends, even if your health has changed, but the premium may be higher than before. Ask what renewal would cost before you buy. If a policy isn’t renewable, you’ll need to apply for new coverage at the end of the term.
What Is Whole Life Insurance?
Whole life is a type of permanent, cash value life insurance. You can keep it for life as long as you pay the premiums. Part of what you pay builds cash value, which you may be able to borrow against or withdraw while you’re alive (NAIC). Universal and variable life are other types of cash value insurance, with different rules for premiums and investments.
Term vs. Whole Life at a Glance
| Term life | Whole life | |
|---|---|---|
| How long it lasts | A set term, like 10 or 20 years | Your whole life, if premiums are paid |
| Cost | Lower for the same death benefit | Higher |
| Cash value | None | Builds over time |
| Premiums | Fixed for the term; may rise if renewed | Usually fixed |
| Best for | Covering years when others depend on your income | Lifelong needs, like estate planning or a dependent who needs lifelong support |
Which One Is Right for You?
Term life often fits if you want to protect your family while you’re raising children, paying a mortgage or covering other debts. When those years end, your need for coverage usually drops.
Whole life may fit if you need coverage that never expires, such as for estate costs or a family member who will depend on you for life, and you can comfortably afford the higher premium for decades.
Many people choose term coverage and put the money they save into retirement accounts. Others value the guarantees and forced savings of whole life. Compare both with real quotes before deciding.
How Much Coverage Do You Need?
Start with the needs you’d want covered:
- Years of income your family would need to replace
- Debts, including a mortgage, car loan or student loans
- Future costs, such as childcare or college
- Final expenses
Then subtract savings and any coverage you already have, such as a policy through work. Workplace coverage often ends if you leave your job, so don’t rely on it alone.
Questions to Ask Before You Buy
The NAIC suggests asking your insurer (NAIC):
- Are premiums on a set schedule, or can they change?
- Does the policy build cash value, and do values change each year?
- What part of the premium or policy value isn’t guaranteed?
- Are there guaranteed minimums?
Check that the insurer and agent are licensed with your state insurance department, compare quotes from several companies, and make sure you can afford the premium for as long as you need the policy.
Frequently Asked Questions
Can I switch from term to whole life later?
Some term policies let you convert to permanent coverage without a new medical exam. Ask whether a policy is convertible and until what age.
Should I cancel my old policy if I find a cheaper one?
Not until the new policy is approved and active. The NAIC warns against canceling a current policy before a new one is in place.
Is life insurance taxable?
Death benefits paid to beneficiaries are generally not subject to federal income tax, but there are exceptions. Ask a tax professional about your situation.
Related Guides
Source: NAIC: What type of life insurance is right for you?.