Term Life vs Whole Life Insurance: Which One Do You Need? (2025)

Brother-in-law called last year because a life insurance salesman had been at his house for TWO HOURS. Charts. Projections. Whole presentation about “building wealth” and “permanent protection” and “cash value growth.”

Premium was going to be $450 a month.

He’s 34. Two kids. Makes decent money but not rich. Asked what I thought.

Told him get a 20-year term policy. Ended up with $750,000 how much life insurance you need for about $45 a month.

Tenth of what the whole life guy wanted. Way more coverage during years when family actually needs protection.

Look, whole life isn’t a scam. Has legitimate uses. But insurance industry has massive incentive to sell it because commissions are way higher. Most people don’t need whole life. Most need term.

What term life is

Simple. Pay premium. Die during term, beneficiaries get death benefit. Don’t die, policy expires, nobody gets anything.

No cash value. No investment stuff. Just pure insurance.

Terms usually 10, 15, 20, or 30 years. Pick one covering years when people depend on you. Young kids? 20 years gets them through college. Mortgage? Match it.

Term is cheap because most people don’t die during term. Company collects premiums 20 years then policy expires. They’re betting you live and usually right.

Healthy 30-year-old can get $500,000 for $25-40 a month.

What whole life is

Permanent. Doesn’t expire. Part of premium goes to “cash value” that grows. Can borrow against it, withdraw, or surrender and take cash.

Cash value grows at guaranteed rate, usually 2-4%. Conservative and predictable.

Also expensive. Same 30-year-old paying $35/month for $500,000 term would pay $400-600+ for whole life. Sometimes way more.

Paying for insurance AND savings AND guarantee it never expires.

Why term is right for most people

You need life insurance when people depend on your disability insurance. You die, they need money.

But that need isn’t permanent. Kids grow up. Mortgage paid off. Spouse builds retirement. Eventually nobody depends on your income.

Term gives massive coverage during 20-30 years when death would be catastrophic. Expires right when you probably don’t need it anyway.

And because it’s cheap you can afford real coverage. $200/month gets you maybe $250,000 whole life or $2-3 million term. Which protects family better if you die tomorrow?

The “buy term invest the difference” thing

Classic argument. Buy cheaper term, invest difference. Term $40/month, whole life $450, invest extra $410 in index funds.

Historically works better. Stock market beats 2-4% cash value growth. Over decades invested difference worth more.

But you have to actually invest the difference. Most people don’t. They spend it. Whole life forces saving because premium due every month.

Honest answer: buy term invest difference works if you’ll actually do it. If not, maybe whole life as forced savings. Though 401k auto contributions also force saving without insurance overhead.

When whole life might make sense

Maxed all tax-advantaged accounts. 401k, IRA, HSA all maxed, looking for more tax-sheltered growth. But only if everything else maxed first.

Estate planning for wealthy people. Estate large enough for estate taxes? Insurance provides liquidity. Legitimate wealthy-person strategy.

Lifelong dependent like child with special needs.

Already old and still need coverage.

Business purposes.

Notice—edge cases or wealthy-people problems. Regular middle-class family? Term.

Brother-in-law’s decision

Got term. $750,000 for 20 years, $45/month. By expiration kids will be adults, mortgage paid, retirement accounts grown 20 more years.

$405/month difference going to 401k. Over 20 years worth way more than whole life cash value.

According to Insurance Information Institute only half of Americans have life insurance. If people depend on your income, get coverage. For most that means term.

Collision just knocked over my coffee which is fine I guess—anyway bottom line: term cheap, whole life expensive, most families need coverage not investment products disguised as insurance. Don’t let salesman with slideshow convince you $450 is better than $45.