What is the difference between whole life and term life insurance?

What is the difference between whole life and term life insurance?

• A. Whole life covers the insured's lifetime, while term life is for a specific period
• B. Whole life has lower premiums than term life
• C. Whole life accumulates cash value, while term life does not
• D. Whole life only covers funeral expenses, while term life provides broader coverage

Answer: (A)

The main idea being tested is how the policy's duration differs between permanent and temporary life insurance. Whole life is a permanent policy designed to stay in force for the insured’s lifetime (as long as premiums are paid) and it also includes a cash value that grows over time. Term life, on the other hand, provides coverage for a specific period—like 10, 15, 20, or 30 years—and does not build cash value. If the term ends and you still want coverage, you’d need to renew or buy a new policy, usually at a higher price. That’s why the best description is that whole life covers the insured for life, while term life covers a set period. The other statements aren’t as accurate: premiums for whole life are typically higher because you’re paying for lifetime coverage plus cash value; term life generally has lower initial premiums but offers no cash value in its standard form; and whole life isn’t limited to funeral expenses but provides a ongoing death benefit for life and a savings component through cash value.

The main idea being tested is how the policy's duration differs between permanent and temporary life insurance. Whole life is a permanent policy designed to stay in force for the insured’s lifetime (as long as premiums are paid) and it also includes a cash value that grows over time. Term life, on the other hand, provides coverage for a specific period—like 10, 15, 20, or 30 years—and does not build cash value. If the term ends and you still want coverage, you’d need to renew or buy a new policy, usually at a higher price.

That’s why the best description is that whole life covers the insured for life, while term life covers a set period. The other statements aren’t as accurate: premiums for whole life are typically higher because you’re paying for lifetime coverage plus cash value; term life generally has lower initial premiums but offers no cash value in its standard form; and whole life isn’t limited to funeral expenses but provides a ongoing death benefit for life and a savings component through cash value.