Which is better and why: term or whole life insurance?

Most people think life Insurance is a bad investment and they are right. However, if your insurance agent knows how to use the tax code and designs a permanent life insurance policy in such a way that the least amount of insurance is bought yet a majority of the premium goes into the cash value under what is called a Modified Endowment Contract or MEC level then that kind of life insurance is well worth it to look into. There are a few different types of permanent life policies such as whole life, index universal life (IUL) but the overall they have similar benefits. Some benefits of this type of policy are:

1. All growth within the account is tax-deferred: it works just like the 401k in that the extra cash that is funded into the policy earns interest (in the case of IUL) which is not taxable unless it is a MEC. 

2. No contribution limits like any qualified retirement plans such as 401k, IRA, Roth IRA etc... Your insurance agent can run an illustration for you to see with your age, risk class, gender, mortality table what the maximum you can fund into this policy at the minimum death benefit.

3. Because of #2 above anyone even a baby more than 15 days old can open an account and start funding this account. With compounding interest at work, this baby can have a sizable fund when he/she turns 18 or 20 years old.

4.  No 59 1/2 rule. Unlike other types of qualified plans, this account allows the owner to withdraw up to his basis from this account with no tax consequences provided it is not a MEC. So let's say I put in $20k into the cash value annually for 5 years and in year 6 the stock market crashes and I want to take this opportunity to do some stock bargain hunting I can withdraw 90% of the $100k in the cash value and buy some cheap stock or real estate. No one will penalize me for taking out the money before I turn 59 1/2 years old. 

5. Liquidity and accessibility: well this says it all. Other than a small fee to pay the insurance company to process the paperwork (I think $25 for some companies) I can withdraw my cash any time for many reasons. Unlike getting equity out of a house, I wouldn't need to "apply" and qualify for it. 

5. Tax-free loan: since I have cash inside my account, I can use this cash as collateral to borrow additional fund from the insurance company and not have to pay for interest or very low net interest costs. I know a company that will allow me to borrow at zero net interest cost after I keep the account for 5 years. This feature sure beats borrowing money from a bank or a credit card company. In addition, since it is a loan I don't pay tax on it. If the account is designed correctly, I can even "borrow" money for a long time when I retire and none of this shows up in my tax return and I am not required to pay back this loan. Why is this important? Because my social security benefits are taxed based on my adjusted gross income (AGI). Granted by the time I retire social security may not be there but for many baby boomers, it could be a good size income so planning to manage their AGI in such a way so that they have "cash" income but not "taxable income" sounds reasonable to me. Again, like any other planning gets your trusted life insurance agent involved, don't do it by yourself. 

There are many other benefits but above are a few that not so many people are aware of.  Why don't we see more people getting this type of account? Well, because the mainstream media has been saying all along it's a bad investment, or buy term invest the difference so people believe it. But this concept is not new.

Source: https://www.quora.com/Which-is-better-and-why-term-or-whole-life-insurance