Why I'd Buy Term Life Insurance (and Skip Whole Life)

Should I buy term life or whole life insurance?

If you've typed that into a search bar, you're not alone. It's the most common life insurance question I get. And my answer might surprise you: for most people, term life is the smart move. I'm not saying whole life is evil—it has its place—but for the average family, term life is cheaper, simpler, and does the job. Let me walk you through my reasoning.

Term life is simple and cheap

Term life insurance covers you for a set period—10, 15, 20, 25, or 30 years, or until a specific age like 65. The 20-year term is the most popular (III). You pay a fixed premium, and if you die during that term, your beneficiaries get a death benefit. That's it. No cash value, no investment component. Just pure protection.

Because it's simple, it's affordable. A healthy 30-year-old can often get a 20-year, $500,000 term policy for less than $30 a month. Whole life, by contrast, can cost five to ten times more for the same death benefit, because it builds cash value over time (Policygenius). That cash value is a savings or investment feature, but it comes with higher premiums and complexity.

Whole life is permanent but pricey

Whole life is a permanent policy—it covers you for your entire life, as long as you keep paying the premiums. It also builds cash value that you can borrow against or withdraw while you're alive (Policygenius). That sounds nice, but you pay for it. The premiums are significantly higher than term life (Investopedia). And the cash value growth is often slow, especially in the early years.

For most people, the extra cost of whole life isn't worth it. You could buy term life and invest the difference in a low-cost index fund, and you'd likely come out ahead. But I'm not a financial advisor—I'm just an editor who's seen too many people overpay for coverage they don't need.

Match the term to your need

Here's my rule of thumb: buy term life for the period when your dependents need financial protection. If you have young kids, a 20-year term covers you until they're out of the house. If you have a mortgage, a 30-year term might make sense. A common rule of thumb is to buy about 10 times your annual income (Investopedia). So if you earn $80,000, that's $800,000 in coverage.

One thing to consider: convertible term insurance. This lets you change your term policy into a permanent one without proving you're still healthy (III). That's a valuable option if your needs change later—say, you develop a health condition and want lifelong coverage. I'd always choose a convertible term policy, just in case.

Decreasing term and credit life: a warning

Not all term life is the same. There's also decreasing term, where the death benefit shrinks over time. A common example is credit life insurance, which pays off your outstanding loan balance if you die (III). The face value goes down as you pay down the loan. These policies can be useful, but they're often sold at high markups and may not be the best deal. I'd rather have a level term policy that pays a fixed amount, regardless of when you die.

Quick warning: Don't buy whole life as a savings vehicle unless you've maxed out retirement accounts and have a high risk tolerance. The cash value is not a substitute for an emergency fund.

Who really needs life insurance?

Life insurance is about protecting those who depend on your income. According to a 2023 study, parents of minor children are more likely to own life insurance than the general population—59% versus 52% (III). That makes sense. If you have kids, you need coverage. If you're single with no dependents, you might not need it at all.

Still, a record 39% of consumers said they intend to buy life insurance in the next year (III). That's good, because many people are underinsured. But don't let that push you into an expensive whole life policy you don't need.

My bottom line

For 90% of people, term life is the right choice. It's affordable, straightforward, and covers the years when your family needs it most. Whole life has its fans, but the high premiums and complexity are hard to justify for most families. If you're in the market, start with term life—and don't let anyone upsell you into something you don't understand.

The most important thing to remember: buy enough coverage for the time your loved ones depend on you, and don't overpay for bells and whistles you don't need.

Sources

• III - Term Life Insurance: https://www.iii.org/article/what-are-the-different-types-of-term-life-insurance-policies
• Policygenius - Whole Life Insurance: https://www.policygenius.com/life-insurance/whole-life-insurance/
• Investopedia - Insurance: https://www.investopedia.com/terms/i/insurance.asp
• III - Life Insurance Facts & Statistics: https://www.iii.org/fact-statistic/facts-statistics-life-insurance