Term vs. whole life insurance

Life insurance comes in two main flavors. Term life is a simple product: pay a premium for a fixed period (say 20 years), and if you die during it, your beneficiaries get a payout. Whole life is a permanent policy that also builds a 'cash value' you can borrow against. It costs roughly 10–15x more than term for the same death benefit. Most people don't need whole life.

How term life works

A healthy 30-year-old non-smoker can get $1M of 20-year term life for $30–50/month. If they die during the 20 years, their family gets $1M. If they don't, the policy expires with no payout. That's the whole product. Boring, cheap, and exactly what most families need.

How whole life is sold

Whole life is marketed as 'insurance plus investment.' A portion of your premium goes to a cash value account that grows slowly over time. The sales pitch emphasizes the tax advantages and the ability to borrow from the cash value. The reality: fees are high, early years have almost no cash value, and the returns on the investment portion are usually much worse than a cheap index fund.

When whole life might make sense

• You have maxed every tax-advantaged account and are in the top tax bracket looking for tax-deferred growth.
• You have an estate large enough to worry about estate taxes, and you're using life insurance for liquidity.
• You have a special-needs child who will require lifetime financial support.

In other words: whole life has a place in advanced estate planning for very wealthy households. If that's not you, it probably isn't the right product.