How is term life insurance different than whole life insurance?

The get a sense of how whole life and term life insurance policies differ, let's look at a few key features commonly seen in each kind of policy.

Term Life Insurance

1. As the name implies, it is life insurance that is effective for a fixed period of time (for example, 5 years, 10 years, 15 years).
2. Because it is limited to a fixed period, term life insurance is the most affordable life insurance policy and the easiest to buy.
3. Typically, acquiring the policy involves less scrutiny of the applicant's medical status, occupation, age, and other factors than there is when applying for a whole life insurance policy (find out What Influences Life Insurance Premiums).
4. A term life insurance policy usually will only pay for death benefits. There is no cash value or equity build-up aspect to it.
5. Often, you can convert your term life insurance policy to a whole life policy.

Whole Life Insurance

1. As the name implies, this is a life insurance policy that covers you for life.
2. Since they cover you indefinitely, these policies are more expensive than term life insurance policies.
3. The health examination is usually more thorough than those required for a term life policy. The underwriter will judge and rate any medical issues more harshly.
4. A whole life insurance policy will come with a "cash value accumulation" aspect to it that builds up over the life of the policy and can be tapped into (via a withdrawal or borrowing) even before the policy holder passes away (learn more about Insurance as an Investment).

The biggest problem I see with the term policy is what to do upon renewal. If you cannot, or do not use the conversion option on your policy, then you might be denied a renewal of your life insurance (for example, if you have developed a serious health condition).