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Term vs whole of life insurance: what's the difference?

Last updated 3rd July 2023
5 min read

If you’re looking to take out life insurance, you may be unsure about the differences between term and whole of life cover. Insurance can be complex, and with your family’s future in mind, it’s important to understand the two types and make an informed choice.

What is the difference between term and whole of life insurance?

There are two main types of life insurance policy: term and whole of life. On the surface, both work in a similar way, in that you pay premiums, and a tax-free lump sum is paid out to your beneficiaries after you die. However, there are important differences in how long each policy covers you that may make one more suitable than the other.

Let's look at term vs whole of life insurance in more detail.

What is term life insurance?

Term life insurance is a type of policy that only covers you for a specific amount of time. This type of plan pays out a lump sum should you die during the policy period. However, if you cancel the policy early or outlive the period of cover, you won’t get anything back.

Some insurers set a minimum or maximum for length of term cover or policyholder age, so make sure to check your eligibility before applying. There are also different types of term policies available on the market, which may be more suitable for your needs.

Level term insurance guarantees the payout amount, and your premiums will remain the same throughout the policy.

Decreasing term insurance offers a payout that reduces in size over the length of the policy. While the cost of premiums doesn’t reduce, they tend to be cheaper than similar level term cover.

Increasing term insurance is the opposite, offering a higher payout the later a claim is made to protect against inflation. However, the premiums will also rise over time.

What is whole of life insurance?

Whole of life insurance is a type of policy that covers you until you die. As long as you pay your premiums, your cover will continue and a payout is guaranteed on your death.

This may be a suitable option if, for example, your family would find it hard to meet ongoing living costs without you – since you’ll be assured of a payout no matter how long you live. SunLife’s Guaranteed Inheritance Plan is an example of whole of life insurance, aimed at providing your loved ones with a nest egg after you’re gone.

It’s important to remember that whole of life policies require you to pay premiums from the start of the policy until you die. In some cases, this may mean that you pay in more than the value of the eventual payout. If you cancel the policy early, you won’t receive any money back, so make sure you can commit to this type of policy before applying.

Some policies also have a moratorium period, which means if you die in the first year or two of cover, you won’t get a payout either.

Which is better – term or whole of life insurance?

There are pros and cons to both types of policy that may make them more or less suitable for your specific circumstances. Here are some important factors to consider when deciding whether term or whole of life insurance is the better option for you.

Your age and health

Most life insurance policies have a minimum or maximum policyholder age. Our Guaranteed Inheritance Plan is for customers aged 49 to 75 at the time of taking out the policy. If you’re older or younger than this and looking for peace of mind that your loved ones will be taken care of after you die, you may need to opt for a term policy instead.

Your health and whether you smoke are also a factor in eligibility, as some policies aren’t available for those with certain pre-existing conditions. However, should you develop a health problem while covered by whole of life insurance, this won’t affect your premiums or payout.

Cost of premiums

Sometimes the answer to term vs whole of life simply comes down to which option you can afford. After a term policy expires, you will have to take out another policy if you wish to remain covered.

It’s likely that your premiums will rise as you get older, so this policy may become less affordable. On the other hand, many whole of life policies offer cover with fixed premiums no matter how long you live, so the cost will never rise.

Your financial obligations

If you’re looking to take out life insurance to cover the cost of your mortgage should you die, the length of time remaining on the loan could be a deciding factor. For example, if you only have 10 years left on your mortgage, you might choose to take out a 10-year term policy – ensuring your dependants are able to pay off the outstanding debt should you die.

Similarly, you might choose term life insurance to provide protection until your children have grown up and moved out of the family home.


The size of the final payout, and whether it’s a guaranteed amount, is important to ensure you can provide the financial protection your family needs. Whole of life premiums can cost considerably more than term premiums for the same payout value – however, it’s also important to remember that a payout is guaranteed for whole of life insurance.

Where the cash payout is fixed, inflation will reduce its buying power over time. For example, a payout of £10,000 will be worth less in 20 years than at the time you take out the policy. This is particularly relevant for whole of life policies, where you could be paying premiums for many years.

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If you’re looking for whole of life insurance to leave an inheritance for your loved ones, SunLife’s Guaranteed Inheritance Plan may be for you.

And if you want to find out more about life insurance, here are some of our other useful articles:

The thoughts and opinions expressed in the page are those of the authors, intended to be informative, and do not necessarily reflect the official policy or position of SunLife. See our Terms of Use for more info.