Term life insurance is a type of insurance for which you pay a monthly premium for a set term, usually ranging from one to 30 years. In return, the insurance company guarantees to pay your beneficiaries a death benefit if you die before the end of the term. The purpose of this type of insurance is to ensure that your beneficiaries have the financial support that they need during that term.
Whole life insurance is a product offered by the life insurance industry for which you pay a monthly premium for a death benefit that will paid to your beneficiaries upon your death, no matter when that might be. Partially because of this open-ended time period, whole life insurance is more expensive than term life insurance. But it’s also more expensive because your premiums go toward administration costs, the death benefit, and an investment account, while with term life insurance, your premiums go only toward administration costs and the death benefit.
The investment account that makes whole life insurance more expensive than term life insurance is actually part of the incentive, though, for whole life insurance. The investment account can grow a cash value. Once the cash value accumulates, you can access it through a policy loan or you can cash out your policy to take the money. When you buy a term life insurance policy, you do not accumulate any cash value in your policy.
Thus, both term and whole life have their purposes, and as long as you understand each one, you will be able to choose the right type of insurance for yourself.