Term Life
Term life insurance covers you for a specific period of time and pays a set death benefit to your beneficiaries if you pass away during the coverage term. Unlike whole life policies, these do not have a savings component. Often, parents will purchase these if they want to have financial protection for their children before they can take care of themselves.
Costs for term life depend on your age, health, and life expectancy. The younger you are and the better health you are in, the lower your premiums will be. You will pay level premiums throughout the term. As long as you continue to pay your premiums, your policy stays in force. You may be able to purchase a conversion rider that would allow you to convert the policy to a permanent life policy at the end of the term, but your premiums would go up accordingly.
Universal Life
Universal life insurance is a form of permanent life insurance that has a savings component and low premiums similar to what you would pay for a term life policy. Your beneficiaries only receive the death benefit, but you can use the savings during your lifetime to help pay your premiums.
Premiums for universal life are only the cost of insurance (COI), which is what keeps the costs so low. If you pay more in premiums than the cost of insurance, the extra money builds as your cash value. Unlike level premiums, however, you can expect the cost of insurance to increase over time and should use the cash value to help cover the rising expense of keeping the policy in force.
The cash value builds based on the market rate or minimum interest rate set by your plan. You can withdraw the cash value but will need to pay taxes on the amount. You can also take out a loan against the cash value but will need to pay it back with interest, or the outstanding amount will be deducted from your death benefit.
Whole Life
Whole life insurance is lifelong life insurance with a savings component that gains value over time. Your beneficiaries receive a set death benefit when you pass, and the remaining cash value is kept by the insurance company.
Whole life insurance has level premiums that do not go up over your lifetime. To pay into the cash value of your account, you can remit payments that are more than your regularly scheduled premiums.
You can withdraw money from your cash value tax-free up until the amount that you have paid in premiums. You can also take out loans against the cash value, but unpaid loans will reduce your death benefit by that amount.