Which of the following best describes the difference between term life insurance and whole life insurance?

Term life insurance and whole life insurance serve different purposes in financial planning and risk management, illustrating their fundamental differences. Term life insurance is designed to provide coverage for a specific period, such as 10, 20, or 30 years. If the insured passes away during this term, the beneficiaries receive the payout. However, if the term expires and the insured is still alive, there is no payout or cash value.

Whole life insurance, on the other hand, offers coverage for the entirety of the insured's life, as long as the premiums are paid. This type of policy also accumulates cash value over time, which can be borrowed against or withdrawn, adding a savings component to the protection it provides. Therefore, the essence of the correct answer lies in this distinction: term life insures for a limited duration, while whole life ensures lifelong coverage and includes a cash value accumulation feature.

The other options present misunderstandings about the characteristics and functioning of each type of insurance, but the clarity in the differences outlined emphasizes why the choice regarding term life providing coverage for a specified period versus whole life offering lifelong protection is accurate and critical for anyone studying insurance fundamentals.