What distinguishes "whole life insurance" from "term insurance"?

Whole life insurance is distinguished from term insurance primarily by its accumulation of cash value. Whole life policies are designed to provide lifelong coverage, and as you pay premiums over time, a portion of those premiums contributes to a cash value component. This cash value grows at a guaranteed rate and can be accessed by the policyholder during their lifetime, either through loans or withdrawals. This characteristic not only offers a savings element but also enhances the overall value of the insurance policy.

In contrast, term insurance provides coverage for a specified period, typically ranging from one to thirty years, and does not build cash value. Once the term expires, the coverage ends unless it is renewed or converted to a whole life policy. Therefore, while term insurance can be less expensive and more straightforward, it lacks the long-term financial benefits that come with cash value accumulation found in whole life insurance. This aspect of whole life insurance makes it a more complex product suited to policyholders interested in both lifelong protection and investment growth.