Term life insurance is just like it sounds: it is life insurance for a set term. A term can range anywhere from 1 year up to 30 years, or sometimes even longer. On the death of the insured, as long as it falls within the term, it pays out the amount of the policy to the beneficiary.
Whole life insurance, however, takes everything you get with a term policy and attempts to add an investment component. Some of these investment components are simple money market funds that accrue interest, but others invest in bonds or seek to mimic indexes like the S&P 500. The policy builds a cash value in this investment component which you can borrow against or cash out after a certain time. The most common types of life policies that combine “other stuff” with life insurance are traditional whole life, universal life, and indexed universal life.
Whole life insurance is more expensive because you are not only paying for insurance, but you are also paying for investment . In almost every single scenario, the amount you pay into a whole life insurance policy will never equate to the benefit you receive. No matter how much the investment portion grows, the insurance company will still take their fees. As such, it is almost always better to keep life insurance as term insurance, and invest the other money in the stock market through retirement vehicles such as 401K or IRA.