Why is whole life insurance much more expensive than term life insurance?
Whole life insurance is designed to last the 'whole of your life'. Term life insurance will only be affordable during the term period. You may know someone who has been diagnosed with a serious illness, but how many people do you know who actually died in their 30's, 40's or 50', or by an accident? Whole life insurance is priced, among other things, with the expectation that you will die with this policy in-force. Term life insurance is priced with the assumption that you're not going to die. Think about it... insurance companies are for profit entities. How would any term life company make any profit if, for example, a policyholder paying $1000 annually for $500,000 of insurance died while the policy was in-force?
Because whole life is designed to last, it builds cash value. Usually after 15 or 20 years, a whole life's cash value account will equal or exceed the total premiums paid into the contract, creating in essence a zero or negative net cost. On the other hand term life builds no cash value and has an ever increasing total net cost1
. Over the long term, you'll usually find that whole life is actually less expensive than term.
1 Dividends are not guaranteed. They are declared annually by Guardian's Board of Directors.