a better way
While Term Life insurance is still available, is a quality product when used for an appropriate purpose, and is still cheap, the better companies now offer an alternative to Term that forces a person to "invest the difference" but is still cheaper than Whole Life.
Universal Life insurance is a two part policy. The life insurance portion is based on your life expectancy and does not accumulate an actual cash value. Instead the policy has a savings portion, which is your "accumulation" fund. Therefore, although it looks like the policy has "cash value," that cash is actually a separate savings fund which is invested by the company, has a minimum guaranteed growth, and can be withdrawn or increased at the will of the client. Your entire premium goes into the cash side—called a "pot of money" in insurance slang. When your cost of insurance and fees are due, the money is taken out of the pot.
If funded properly, it is like putting money into the pot with a fire-hose, and taking it out with a needle, at least in the early years. The insurance is cheaper than Whole Life because the company knows that in the beginning, the interest they will pay on the savings portion, combined with the premium itself, will far exceed the COI and fees. Thus the pot will be "filling up" in spite of having a small leak to pay the insurance portion. As you get older, the leak will get bigger, but you can fund the cash portion in such a way that the COI and fees will never catch up to it. Also, if you have cash you can spare from time to time, you can add it to the savings portion of the policy.
Universal Life forces you to save, but is flexible enough to allow you to deposit varying amounts as your needs dictate. Once you have paid into it for a few years, you will have enough cash that even if you had such a dire emergency that you couldn't pay your premium at all for several months, there would be enough money to fund the life insurance so it wouldn't lapse. Furthermore, if the Cost of Insurance increased or the interest paid decreased (due to a negative event in the economy), and your cash side started to drop, you could either increase your premium or simply surrender the policy and put the entire cash accumulation into a fixed annuity—a retirement instrument that works much like life insurance to a beneficiary, but requires no additional premium from you while providing you with a retirement fund that you can use if you should ever need it.
Know what you
are choosing and why
Term Life insurance and Universal Life are both excellent products. Neither should be selected blindly. Your choice should be determined by your purpose. If your need is to protect a family home until a mortgage is paid, or provide a spouse with a large sum of money in the event of the loss of the primary wage earner, Term may still be the best choice. If so, you should purchase the Term from a company that has a Whole Life or Universal conversion option, not merely additional Term options that will leave you with nothing should you live past 85.
If on the other hand, your purpose is to create some additional retirement funds that do not require a "loan" in order to access them (which Whole Life does), Universal Life will be a better choice. To make sure the cash side builds the way you want it to, be sure to pay a premium that is about 20% higher than the Target premium. Insist on seeing a prospectus—which is simply a prediction of what the policy will do based on today's interest rates.