Insurance Comparison

Term Life vs Whole Life

One costs 10x more. One has a "cash value." One makes insurance agents rich. Here is the honest comparison.

TL;DR

Buy term life insurance and invest the difference. A 30-year-old pays ~$30/month for $500K of term life vs ~$400/month for whole life. Investing the $370/month difference in an index fund at 10% returns gives you $830,000 after 30 years — far more than any whole life cash value.

Side-by-Side Comparison

Feature	Term Life	Whole Life
Monthly Cost (healthy 30-year-old, $500K coverage)	$25 - $40/month	$250 - $500/month
Coverage Period	Fixed term (10, 20, or 30 years)	Lifetime (never expires)
Cash Value	None — pure insurance	Builds cash value over time (slowly)
Investment Component	No — you invest separately at lower fees	Yes — but returns are typically 2-4% after fees
Complexity	Simple — you die, beneficiary gets paid	Complex — cash value, loans, surrender charges, dividends
Agent Commission	Low (agents earn less, recommend less)	High (agents earn 50-100% of first year premium)
Best For	Income replacement during working years	Estate planning for very high-net-worth individuals
Annual Cost on $500K Coverage (age 30)	$300 - $480/year	$3,000 - $6,000/year

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Glen's Take

Whole life insurance is one of the most profitable products in the insurance industry — profitable for the company and the agent, not for you.

The math is not close. A healthy 30-year-old can buy a $1 million, 30-year term policy for about $50/month. The equivalent whole life policy costs $500-$800/month. Investing the $450-$750/month difference in an index fund at 10% returns produces $600K-$1.7M after 30 years — dwarfing any whole life cash value.

Buy term life if you have dependents who rely on your income. Invest the rest in a Roth IRA and index funds. Ignore anyone who tells you whole life is an "investment."

Frequently Asked Questions

Is term life or whole life insurance better?

For 95% of people, term life insurance is the better choice. It costs 10-15x less than whole life for the same coverage amount. The 'investment' component of whole life insurance earns poor returns (2-4%) compared to simply buying term life and investing the difference in index funds (historically 10%). The strategy of 'buy term and invest the difference' has been validated by decades of data.

Why do insurance agents push whole life insurance?

Commissions. Insurance agents earn 50-100% of the first-year premium on whole life policies. On a $500/month whole life policy, that is $3,000-$6,000 in commission — compared to $100-$200 for a term life policy. The financial incentive to sell whole life is enormous, which is why it is aggressively marketed despite being inappropriate for most buyers.

When does whole life insurance make sense?

Whole life insurance makes sense in two narrow situations: (1) Ultra-high-net-worth estate planning to pay estate taxes without liquidating assets (estates over $13 million). (2) Individuals who have maxed out every other tax-advantaged account and want additional tax-deferred growth. For everyone else, term life + index funds is the superior strategy.

How much life insurance do I need?

A common rule is 10-15x your annual income. If you earn $80,000/year, a $800,000-$1,200,000 term life policy covers your family's needs. More precisely: calculate how much your family needs to replace your income, pay off debts, and fund future goals (college, retirement). An online life insurance calculator can help.

What happens when my term life insurance expires?

When the term ends, coverage stops and you stop paying premiums. If you still need insurance, you can renew (at a much higher rate based on your current age) or buy a new policy. Many people no longer need life insurance after the term ends because their children are grown, mortgage is paid, and savings are substantial.

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