Let's look at some numbers. These are just example rates that I found online. You can substitute your own quotes and compare yourself. I'm not going to name the company, but these advertised rates are all from one nationally-known company for a 25-year old female.
- Whole life: $78.13/month for $100,000 of coverage.
- 10-year term: $15.00/month for $250,000 of coverage.
- 20-year term: $15.45/month for $250,000 of coverage.
- 30-year term: $20.23/month for $250,000 of coverage.
If you went with the whole life option, you would be paying $937.56 per year. The policy builds a cash value; the amount this grows can vary greatly, and you'll need to look at the fine print to see how it will grow, but let's pretend that after 30 years, the cash value of the policy is $50,000 (a reasonable guess, in my opinion). Let's look at what this means: You can cash out your policy, but at that point, you'll stop paying payments, and your heirs won't get your $100,000 death benefit. You can borrow against it, but you'll have to pay it back. You could use it to pay your premium, in which case you'll stop paying payments. However, keep in mind that if you do pass away, you lose the cash value you've built up; your beneficiaries only get the $100,000 death benefit.
Now let's look at the term insurance option. We'll go with the 30-year term. It will only cost you $242.76 per year, and the death benefit is more than double the whole life coverage. If you were to take the difference between the two premiums ($58 per month) and invest it in a mutual fund growing at 8% per year, you would have $86,441 in your account after 30 years. This money is yours (or your heirs), whether or not you pass away before your term is up. After the 30 years is up, your insurance is over, but you are now almost all the way up to the death benefit of the whole life policy anyway.
In my opinion, term life insurance is better than whole life for just about everybody.
I don't want to be morbid here, but the earlier someone dies, the more benefit they get with term insurance vs whole life. If someone does have reason to believe that his life expectancy is shorter than average, term insurance makes even more sense, as he is more likely to get the death benefit for much less money in premiums than he would in whole life.