Whole vs. Term Life Insurance: What You Should Know

Term life insurance is by far the most popular standard type of life insurance, but many policy buyers have a tough time deciding between term life and whole life insurance. It's important to understand the basic distinction between the two when choosing a policy.

Whole life insurance has an investment aspect and this is the main difference between the two types of policies. At the end of a whole life policy, the premiums paid into the policy are returned to the buyer along with a return of a small percentage, as whole life funds are used to invest. However, it is very important to note that the return is much smaller than other investment-type accounts might yield. Whole life policies are not nearly as strong of an investment as a 401k or other retirement accounts, but they're still popular since they offer a way to guarantee financial protection for a policy holder's family.

Term life insurance policies do not pay out if the policy holder does not die, except under special circumstances. Return of premium term insurance policies, for instance, may return premiums, but without any additional money. The main advantage of term policies is that they're extremely inexpensive. Many financial advisers recommend the use of a term insurance policy to protect other types of investments. In any case, the low cost of term insurance makes it a superior choice for many buyers.