With term insurance, you're covered only during the life of the policy, while you're paying the premiums. If you carry a term life insurance policy for 50 years, regularly pay the premiums, and then quit paying and die a year later, you're out of luck. (Well, you'd be out of luck regardless -- but, in this case, your beneficiaries are out of luck, too.) There are several forms of term insurance: * With level term, you pay a fixed premium for up to 20 years. This can be a good deal, as it protects you against the effects of inflation and unexpected changes in your health that would warrant higher premiums. * Annual renewable term gives you the option of renewing your policy regularly, but at increasing premium rates. * Decreasing term policies feature a steadily decreasing death benefit. This might seem undesirable, but it can be sensible for many people. You may need a bigger benefit when you're a young breadwinner than when you're a retiree with grown children and a nice nest egg. Whole life insurance, meanwhile, is designed to cover you for your whole life. These policies charge you a fixed premium each year, one that's typically higher than term insurance. The advantage touted by insurance companies for whole life insurance is that, while part of the premium covers what term insurance would cost, the surplus resides in an account that pays interest and accumulates a cash value. As this "accumulation account" grows, your premiums can decrease over time. Eventually, in some cases, the interest earned can pay the premiums for you. So, you won't be paying any more premiums, but you'll still be covered for the rest of your life. The problem with whole life insurance is that insurance companies tend to offer low interest rates to policyholders, while they typically earn much greater returns because they invest the money in stocks and bonds. Policyholders are indeed earning a bit of money through the policy, but as an "investment," it leaves a lot to be desired. src: fool.com

The basic difference between term and whole life insurance is this: A term policy is life coverage only. On the death of the insured it pays the face amount of the policy to the named beneficiary. You can buy term for periods of one year to 30 years. Whole life insurance, on the other hand, combines a term policy with an investment component. The investment could be in bonds and money-market instruments or stocks. The policy builds cash value that you can borrow against. The three most common types of whole life insurance are traditional whole life policies, universal and variable. With both whole life and term, you can lock in the same monthly payment over the life of the policy. Genereally, the cost of a whole life policy is much more that that of a term life insurance policy. Personally, I do not consider it a good investment vehicle. One would usually do much better purchasing a term policy and putting the price difference into others investments if one can do it reliably.

Their names tell you the difference- Whole life covers you for the "whole" life and term covers only for a certain period of time. Term insurance really should be the only way insure yourself. I say this because of what Hadley has to say up above, touting the benefits of whole life. There is no savings in whole life and there are no investments in whole whole life. If anyone says that there is, they are breaking the law. Let me ask a question: Would you join my bank that I am starting up? But before you do, I want to let you know that there are some restrictions to joining my bank. Actually there are five. 1) Anything you put into the bank will NOT be available for 2-8 years. 2) It is your money but should you decide to take a loan out or withdraw it, I will CHARGE you to take your own money out with rates between 6-8 percent. 3) And when you take it out, I may NOT let you have your money for up to 6 months. 4)The interest earned on the money you put into my bank will grow somewhere between 2-4 percent. 5) You will like this best. Should you die, your survivors must choose between the amount I told you I would pay OR whatever is in your account,IT WILL BE LOWER THAN OUR AGREED AMOUNT, BUT they CANNOT HAVE BOTH. Which means, I get to keep ALL the money that has accumulated in the account , from the beginning. Oh, with the exception that they pay a higher monthly amount to be able to get both. If whole life is so good, why are these the five main points to NOT purchase whole life, and whole life includes universal, variable and variable universal? Based on those five points, would you do business at my bank?

Just another reason to consult a professional IMO..... The loosely used term (no pun intended!) "whole life" should normally be substituted for "permanant insurance" as what many people discribe when they hear whole life is infact Univeral Life and Varialble Life.

Any money you may save through a whole life policy is mostly illusion. The insurance companies pay you about .04% per year interest, but if you go to "borrow" back your own money, they charge you about 15% interest ( or far more! ) on your OWN money. Sound like a scam? Ever see those monuments to human greed they call "Headquarters buildings?" Ever wonder why insurance peddlers push Whole Life? It's because their comissions are higher. Never, ever buy whole life!

The biggest advantage of whole life is the ability to have your insurance and use it too. Here's how it works. I bought a Universal Whole life policy when I was 17. Paid on it monthly for 20 years whereafter the policy took over itself and the cash value and death benefit grows every year. Lately the interest has been under 4% but I've seen some years as high as 18%. I can barrow my own money for a flat rate of 8% interest and and I pay myself back the principal and the interest. The profits are all tax free until you start permenetly drawing out the amount greater than whatever you have put in over the years. But loans to yourself are taxfree money. For example, lets say you have $50,000 cash value in your whole life policy. You can barrow $30,000 from yourself. buy a car with it and make the car payments to yourself for the next 5 years. You may pay 8% interest, but you get the interest too, back into your account. In addition the remaining $20,000 is still earning interest and if you die whatever you owe is simply deducted from the death benefit, which never decreased even though you barrowed money from the principal. So instead of barrowing $30k and paying it plus interest to a bank. You barrow it from yourself and pay it back plus interest to yourself. As long as you don't barrow more than 85% of the "cash value" the insurance if viable and the barrowed amount is not taxed. You insurance guys can correct any minor details i've left out, but thats how I've seen it work for me. Perhaps the word Universal makes it different?