How does the concept of "whole life" differ from "term" insurance?

The distinction between "whole life" and "term" insurance is primarily based on the structure and purpose of the policies. Whole life insurance is designed to last for the policyholder's entire life, providing coverage that does not expire as long as premiums are paid. An essential feature of whole life insurance is that it combines both a death benefit and a savings component, also known as cash value. This cash value accumulates over time and can be accessed by the policyholder during their lifetime, which adds an investment element to the insurance coverage.

On the other hand, term insurance is strictly a pure insurance product. It provides coverage for a specified term or period, such as 10, 20, or 30 years, and does not accumulate cash value. If the policyholder passes away during the term, the beneficiaries receive the death benefit. However, if the term ends and the policyholder is still alive, the coverage ceases, and there is no payout or savings component involved.

Understanding this difference is crucial for making informed decisions about life insurance options based on individual financial needs and goals. The other options do not accurately reflect the nature of these two types of insurance.