Term vs. whole life: a decision framework that actually helps

Why this question is so hard to get a straight answer on

Whole life policies pay agents large up-front commissions. Term policies pay small ones. That's not a moral failing — it's just the economics — but it means most "term vs. whole" conversations are pre-loaded toward whole. We sell both, and we'll tell you the same thing we tell our own families: for most people, most of the time, term is the right answer. Here's the framework we use.

Question 1: What problem are you actually solving?

Life insurance solves one clean problem: replacing your income or covering a specific obligation if you die unexpectedly. Common shapes:

• Income replacement for dependents — 10–15× your annual income, until kids are independent.
• Mortgage payoff — match the term to the mortgage balance and length.
• Estate liquidity / business buyout — fixed obligations that may last your whole life.
• Final expenses — $15,000–$30,000 to cover burial and small debts.

The first two are temporary problems (they end when the kids graduate or the mortgage is paid). The last two can be permanent. Term fits temporary. Permanent insurance fits permanent.

Question 2: Are you maxing out tax-advantaged accounts?

The "whole life as investment" pitch only competes after you've filled 401(k), Roth IRA, HSA, and 529 buckets. If you haven't, the math is brutal: a 30-year term + investing the premium difference in an index fund beats whole life cash value in nearly every modeled scenario.

If you have maxed those out and you're a high earner looking for additional tax-deferred growth, whole or universal life starts to make sense as a small slice of the plan.

Question 3: How likely are you to keep paying for 20+ years?

This is the question whole-life sellers don't ask. Industry lapse rates on whole life are 22% in the first 3 years and over 40% by year 10. If you cancel, you typically get back far less than you paid in. Term, by contrast, is supposed to expire — that's the deal.

Our default recommendation

For a typical family with kids and a mortgage:

1. 20- or 30-year level term, sized at 10–12× income, for the working-years window.
2. A small final-expense whole life policy ($15–25k) only if you want to guarantee burial costs are covered no matter what.
3. Skip "indexed universal life" unless a fiduciary advisor (not the person selling it) has reviewed the illustration.

Want a second opinion?

Send us a policy illustration you've been pitched. We'll mark it up, show you what the guaranteed vs. projected columns actually mean, and tell you whether we'd write it for our own family.