Which is better – Term or whole of life insurance?

7 min Read Published: 15 Dec 2020

Term Insurance and Whole of Life InsuranceLife insurance is available to buy in a few different ways and here we're going to look at term life Insurance vs whole of life insurance. Term life insurance is a temporary life insurance policy that pays out a sum of money if death happens during the policy term. Whole of life insurance is a policy that will continue until you die and pay out a sum of money upon death. In this article, we explain the pros and cons to both these types of life insurances so that you can understand which one may be best for you.

You can jump ahead to read how to arrange your life insurance and get £50 cashback.

Term Life Insurance - How does it work?

Term life insurance provides life insurance for a set number of years. If you survive the duration of the policy, the policy expires and there is no payout from the policy. The premiums you pay are not usually refunded. This is the most common type of life insurance people buy. It provides security and peace of mind during years when you may be paying off mortgages and other debts as well as raising children. Because these responsibilities won't last forever, your life insurance doesn't need to. Essentially, if you die during the policy term then your policy will pay out a sum of money. The money can then be used to fulfil your financial obligations as long as you choose enough for what you need.

Whole of Life Insurance - How does it work?

Whole of life insurance does exactly what it says - it provides life insurance for the whole of your life and so you continue paying your policy until you die. This type of insurance gives you the certainty that the sum of money that you have insured will be paid upon your death. The policy cost reflects this as it is higher than what you would pay for an equivalent term insurance policy. The policy builds value over the years but will pay out even if death happens prematurely. It is the type of insurance that you will need if there are financial costs that you wish to fund when you die. These can be costs such as funeral expenses, inheritance taxes or anything else that you want to leave money for when you die.

Term Life Insurance v Whole of Life Insurance

The below table compares the main features of term life insurance and whole of life insurance

Term Life Insurance Whole of Life Insurance
Runs out after a set number of years (1-40 years) Pays out when you die, whenever that happens.
No qualifying period Can have a qualifying period at the start when only the premiums paid will be repaid if you die.
Protects you while you pay off your mortgage/debts and raise your family. Usually pays for funeral expenses and other death duties including Inheritance Tax.
Cheaper than whole of life insurance. More expensive than term life insurance
No financial return if you cancel the policy during the policy term. Builds cash value so there may be a financial return if you cancel the policy.
Fixed and known cost makes it easier to budget for. Costs increase over time meaning it is more expensive in later life.
You can write it into a trust to make sure it reaches the right people potentially avoiding tax on the money. You can write it into a trust to make sure it reaches the right people potentially avoiding tax on the money.


How to buy your Term or Whole of Life Insurance policy

There are lots of scenarios where the choice of policy might not be clear or perhaps you just want to be sure that you're making the right choices. Life insurance isn't something we'll be able to come back to correct if it doesn't end up doing what we want and so it is worth taking the time and effort to make sure you get it right.

Speaking to a specialist life insurance adviser* will ensure that you've covered all the bases and set things up correctly. Not only will an adviser be able to help you decipher which policies are best suited to your needs, they can help you to put the policy into trust, ensuring that your preferred beneficiaries and nominated.

At Money to the Masses, we have vetted the services of an independent life insurance specialist that can access all types of life insurance from the various insurance companies in the market. The advisers are specially trained to provide advice across a whole spectrum of needs, ranging from protecting your mortgage or business to paying your inheritance tax bill when you die. To arrange a call from an adviser, fill in this form* with your preferred time and one will be in touch. As a Money to the Masses reader, you'll also qualify for £50 cashback when you arrange your life insurance.


If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. This link can be used if you do not wish to help Money to the Masses and do not wish to qualify for the cashback referred to in the article -