Quick answer: Term life insurance covers you for a set period, like 10, 20, or 30 years. If you pass away during that time, it pays a death benefit. If the term ends, the coverage usually ends too, and it has no cash value. Whole life insurance is designed to last your whole life as long as premiums are paid, and it builds cash value you may be able to borrow against. Term usually costs much less at first for the same death benefit. Whole life costs more, but the cash value is why people use it for infinite banking, also called Own Your Bank.
This question comes up a lot. Both kinds of life insurance have a place. The right choice depends on your goals, your budget, and your family. This is education only, not financial, tax, or legal advice. Every policy and company is different.
1. How Long Coverage Lasts
| Term Life | Whole Life | |
|---|---|---|
| Length | A set number of years | Your whole life, if premiums are paid |
| At the end | Coverage usually ends | Designed to pay out whenever you pass |
Many term policies let you renew or convert to permanent insurance, but the rules and costs vary. Read your policy.
2. How Premiums Work
Term life premiums are often level for the term, then can go up a lot if you renew.
Whole life premiums are usually level for life. You pay more than term at the start for the same death benefit, but the premium does not go up as you age.
3. Cash Value
This is the biggest difference.
- Term life has no cash value. It is pure protection.
- Whole life builds cash value over time. Part of your premium goes into it, and it grows based on the policy’s guarantees and, for many policies, dividends.
Dividends are not guaranteed. Ask the company about its history and how it pays them.
4. Borrowing Against the Policy
With whole life, you may be able to take a policy loan using your cash value as collateral. You do not have to explain why you want the money. Loans have interest, and unpaid loans reduce the death benefit. See our post on how does a policy loan work.
Term life has no cash value, so there is nothing to borrow against.
5. Cost
For the same death benefit, term usually costs much less at the start. That is why many families with a tight budget start with term. Whole life costs more because it is built to last and to build cash value.
6. Who Each One May Fit
| Term Life May Fit If | Whole Life May Fit If |
|---|---|
| You need a lot of coverage on a small budget | You want coverage that lasts your whole life |
| You need coverage for a set time, like while kids are young | You want to build cash value |
| You want simple protection only | You are interested in infinite banking |
Many people own both. They use term for a big amount of protection and whole life for lifelong coverage and cash value.
7. Why Whole Life Is Used for Infinite Banking
Infinite banking, which we also call Own Your Bank, is the idea of using the cash value in a whole life policy as your own source of financing. Instead of borrowing from a bank, you borrow against your policy, then pay yourself back.
Policies built for this are usually designed differently than a regular whole life policy. They often use a paid up additions rider to put more money into cash value early. See our page on what are paid up additions.
Term life does not work for infinite banking because it has no cash value.
Common Myths
| Myth | Truth |
|---|---|
| “Whole life is always a bad deal.” | It costs more, but it does things term cannot, like build cash value. |
| “Term is all anyone needs.” | Term is great protection, but it usually ends and has no cash value. |
| “Cash value grows like the stock market.” | Whole life cash value grows based on guarantees and dividends, not stock prices. |
Questions to Ask Before You Buy
- How much coverage does my family need?
- How long do I need coverage?
- What can I afford each month, for the long term?
- What is guaranteed, and what is not?
- If whole life, how is the policy designed, and is there a paid up additions rider?
Talk With Someone Licensed
I am a licensed life and health insurance agent, and we spend a lot of time helping people learn about infinite banking. Read more on our insurance and infinite banking page. If you want to learn with a group, join our free Cash Flow Association community on Skool at skool.com/cashflowassociation.
Keep Reading on This Site
- What Are Paid Up Additions? A Plain English Guide for Whole Life Policy Owners
- How Does a Policy Loan Work? A Plain English Guide to Borrowing From Whole Life Insurance
- How to Build an Emergency Fund: 7 Simple Steps to Get Started
- Insurance and Infinite Banking
- Insurance and Own Your Bank Guide
Frequently Asked Questions
What is the main difference between whole life and term life insurance?
Term covers a set number of years and has no cash value. Whole life is designed to last your whole life and builds cash value.
Why is term life insurance cheaper?
It covers a set time and has no cash value, so for the same death benefit it usually costs less at the start.
Can you borrow from term life insurance?
No. Term has no cash value, so there is nothing to borrow against.
Which type of insurance is used for infinite banking?
Whole life insurance, usually designed with a paid up additions rider to build cash value.