Term life vs Whole Life Insurance: Which is Best for Millennials?

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Is term life insurance or whole life insurance better for you? Learn about the differences between term life vs whole life and which product is best for you.

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Term Life vs Whole Life Insurance: Which is Best for Millennials?

At one point or another, you may have asked yourself about life insurance and whether you should make the investment. 

If you’ve spent some time researching the types of life insurance, then you may have seen a life insurance product known as term life insurance and a life insurance product known as whole life insurance. 

Even though it may seem that your retirement is far in the future and worrying about financial matters like life insurance is something for later, there is no time like now to start planning and executing a strategy that will help you gain financial freedom.

Although life is unpredictable, there is something we can do: taking control of our present. 

And by that, I mean talking about your financial situation and specifically, reviewing whether term life insurance or whole life insurance is a better option (hint: it won’t be whole life insurance). 

I don’t care if you are a recent college graduate or in your early 40’s, life insurance is something to seriously consider assuming you have a family and/or a partner who is somewhat or completely dependent on your income. 

But I know my readers: You (and I) want the biggest bang for your buck. 

So which life insurance product is going to deliver us the most value for the lowest cost? 

Check out my analysis below.

the millennial money woman blog post "permenant vs term life insurance"

Term Life vs Whole Life Insurance: What’s the Difference?

If you remember reading my previous blog post on term life insurance, then you’ll probably also remember that there are 2 main types of insurance out there: Term life insurance and permanent life insurance. 

As a quick reminder, I’ve listed the differences between term life and permanent life insurance below:

Term Life:

  • Lasts for a specific term
  • Cheap option 
  • No cash value
  • Simple

 Permanent Life:

  • Lasts for your life
  • Expensive option
  • Cash Value = Forced Savings
  • Complex

How does term life insurance and permanent life insurance relate to our topic at hand of term life vs whole life insurance?

That’s because whole life insurance is a type of permanent life insurance. In other words, whole life insurance will last for your entire life (assuming you pay your monthly premiums).

And quite frankly, out of the many different life insurance options out there, it comes down to 2 main life insurance product types: term life vs whole life insurance. 

whats term life insurance

What is Term Life Insurance?

As the name already suggests, term life insurance guarantees you life insurance coverage for a specific amount of time (a term). 

These terms typically increase in increments of 5. 

In other words, you can purchase term life insurance coverage lasting for 5, 10, 15, etc. years. Typically speaking, the maximum term life insurance coverage you can purchase is 30 years. 

Should something terrible happen to you during your covered term, your beneficiaries will receive your death benefit. 

If you outlive your specified term, then you may have lost a few thousand dollars that you’ve paid to the life insurance company over your term period, but the glory is you are still alive. 

Term life insurance is the simplest type of insurance out there. That’s why it’s typically less expensive than its counterpart: whole life insurance. 

Term life insurance does not have a cash value build-up – which is a feature of a whole life policy.

Ultimately, if you purchase term life insurance, the hope is not to use the life insurance policy at all (you’ll still be living at the end of the term). 

However, one of the major benefits to purchasing term life insurance is not only for the sake of guaranteeing your family’s financial safety should something happen to you during that term but it is also for the sake of giving you some peace of mind.

what is whole life insurance

What is Whole Life Insurance?

I’m going to be very candid with you: In my opinion, a 
whole life insurance policy is a waste of money for most millennials. 

Two of the main reasons why so many people (especially Millennials) still buy whole life insurance policies include:

  • Lack of financial literacy education.
  • Whole life insurance salesmen are really good at their jobs.

Why do I write about whole life insurance salesmen?

Because I want to make sure all of my readers are aware that whole life insurance comes with big, fat bonus checks for the whole life insurance salesmen. 

The commissions are much bigger than term life insurance (because whole life insurance premiums are much larger than term life insurance premiums). 

The bigger the potential commission, the more likely your whole life insurance salesman will be motivated to make that sale. So beware. 

Why are whole life insurance premiums more expensive than term life insurance premiums?

There are a few reasons, which I’ve outlined below.

why whole life insurance premiums are so exspensive 1

Let me explain a little more about this chart.

First, whole life insurance, unlike term life insurance, is designed to last your entire life. 

Although lifetime insurance coverage may sound attractive – and safe – it might not be the right option for you – and I’ll tell you why that is. 

If you dedicate yourself to following the positive habits I teach you on my Millennial Money Woman blog to pursue financial freedom, you and your family should have no debt, a sizable emergency savings fund, and a healthy investment account for when you retire. 

In other words, should something happen to you when you retire, your family will be financially secure thanks to your healthy financial practices. 

Why then would you need whole life insurance? 

In essence, you’d be over-insured and potentially paying thousands of dollars of premiums for something you don’t even need. 

Second, whole life insurance premiums are more expensive than term life insurance premiums because whole life builds a cash value component. 

This means that a small percentage of the premiums you pay is actually “saved” in an investment/savings account within your whole life insurance policy. 

I don’t think any insurance policy should be considered as an investment vehicle – in my opinion life insurance should be used simply as a tool to provide financial security (and peace of mind) to you and your family. Nothing more. 

Now, if you are a person who has trouble saving money and needs structure and discipline to enforce healthy savings habits, then yes, whole life insurance could be an option for you. 

That’s because whole life insurance has that forced savings component – the cash value. 

The first few years of paying whole life insurance premiums don’t go toward your cash-value account. 

Only over time (we are talking about 20 years from now), you’ll see a gradual increase in the value of your “whole life insurance savings account.” 

Keep in mind, that cash value typically will not be added to your death benefit. 

This means that most people who have whole life insurance policies often don’t even touch their cash value account – which in my opinion is a waste of money. 

One of the reasons why your premiums for whole life insurance are so high is because of that cash-value account.

Ultimately, I would argue that it would be more productive, from a financial perspective, to invest your money (and see a 7% or greater return) than investing your money in a whole life insurance policy and seeing a 2% to 4% return on your cash value bucket. 

And to be honest, I don’t want to depend on taking my last breath so my family can collect the money. 

I’d prefer to invest the money that would have originally gone toward whole life insurance premiums.

Cost Comparison of Life Insurance

I want to give you an accurate idea of the drastic difference in premiums for term life vs whole life insurance policies. 

We’re going to take my friend Mia (who was featured in my last post about the CARES Act Student Loan Relief) and use her personal statistics to help us better understand the cost difference between term life vs whole life insurance.

Mia’s Personal Statistics
Life Insurance Spending Budget
$1,200/year or $100/month
Smoker Status
Health Status
Very Healthy

Based on these statistics, Mia and I started shopping the life insurance market place to see how much term life vs whole life insurance we could obtain for her, taking into consideration that her current life insurance spending budget was roughly $100/month. 

We found the following:

Term Life Whole Life
Monthly Spending Budget
Death Benefit
30 Years

As you can see, Mia will get the biggest bang for her buck if she were to go with a term life insurance policy. 

Every death benefit dollar (out of $1,000,000) for her term life insurance will cost her $0.00048 while every death benefit dollar (out of $100,000) for her whole life insurance will cost her $0.0114. 

That’s more than a 2,000% difference! 

I believe the mathematics here speaks for itself.

Don’t Wait Until You Need Life Insurance to Get It

It’s better to take control today of the unpredictable tomorrow. 

To be honest, you don’t know what tomorrow will bring you and life is a gem. 

The best time to obtain life insurance is right now – you’re younger than you’ll be in a year, you might be healthier now than you would be in a year (you never know). 

If you obtain life insurance now, your premiums will likely be much lower than if you were to hold off and wait.

Closing Thoughts

Ultimately, life insurance – be it term life insurance or whole life insurance – may not be for everyone.

I fully realize that some may not be for the concept of paying money for life insurance (my husband being one of those people). And that’s perfectly OK. 

It’s important to discuss with your significant other if you believe you both are at the point where you will need life insurance, however. 

Understand that it’s OK to have differing viewpoints on this topic (I know many people who do) but also understand that there are some types of life insurance products out there that don’t cost a lot of money while providing a higher amount of insurance coverage than other policies would (term life vs whole life insurance). 

By now, I’m sure you’ve realized my preference is for term life insurance because I personally don’t like paying more than what I need. 

I don’t need a forced savings component (as with whole life insurance) and I don’t want to pay more for a lower benefit. 

In my eyes, that doesn’t fly – but that’s why it’s called personal finance. 

Everything boils down to your own personal situation and preference – and that’s perfectly fine.

I would however say – regardless of whether you’re leaning toward whole life insurance over term life insurance – start doing your life insurance research now. 

If you think you’ll need it at some point in your life, today is the best day to start.

Your bank accounts will thank me later!

What’s your experience with term life vs whole life insurance?

Fiona Smith
Fiona Smith
Fiona Smith is the founder of The Millennial Money Woman. She holds her Master of Science Degree in Personal Financial Planning, has advised decamillionaires for 6 years in the corporate wealth management sector and has co-founded a local non-profit community teaching financial literacy. She is the author of the personal finance book How to Get Rich from Nothing and her work is featured on Forbes and FinCon.

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