With term insurance all you pay for and get is protection. If you die, they pay.
Term insurance rates start very low but go up every year.
With whole life you are buying a tax-sheltered savings plan as well. Your policy accumulates "cash values."
Whole life rates start high but remain constant.
Insurance salesmen are eager to sell whole-life policies because their commissions are so much higher.
But you would be wiser to buy renewable term insurance and do your saving separately. (With renewable policy you are assured of continuing coverage even if your health deteriorates.)
The problems with whole life:
- Many policies pay low interest.
- It is impossible for a non-expert to tell a good policy from a bad one.
- There is tremendous penalty for dropping the policy, as many people do, after just a few years.
- Most young families cannot afford the protection they need if they buy whole life. The same dollars will buy five or six times term insurance.
- In later years, and particularly beyond the age of 50 or 55, term insurance premiums rise rapidly. But by then you may have a less urgent need for life insurance. The kids may be grown, the mortgage paid off, the pension benefits vested. You will still need to build substantial assets for retirement, and to protect your spouse; but there are better ways to save for old age than whole life.