Two basic types of Life Insurance
There are basically two general types of life insurance. The first is called Term life insurance and the other goes by various names such as Whole Life, Universal Life, Variable Life, Variable Universal Life, Cash Value, and others. All life insurance that is not Term can be grouped and generalized as cash value life insurance.
Term life insurance works like auto insurance; you pay a fixed premium each month and get a payout if you have an accident, otherwise you get nothing. The years of a Term life policy range anywhere from 5 year to 40 year terms, during which time your premium never changes, and at the end of the term the life insurance expires.
Cash value life insurance combines life insurance with some sort of savings, investment, or cash value. A portion of each premium contributes to the savings portion of the policy. Cash value life insurance, in addition to providing a benefit upon the death of the policy holder, also accumulates cash value over time enabling benefits to be paid out before death.
The fact that you get nothing back from Term life insurance and that the other type has a cash value that you can get back is not what it seems.
For most people's circumstances cash value life insurance is the biggest rip off on the planet in terms of a good investment. Cash value life insurance is much more expensive than term life insurance. The investment (or cash value) portion of the policy provides extremely poor returns and is loaded with unnecessary and hidden fees.
The most alarming characteristic about cash value life insurance is that the cash value being built up, that you think is yours, will be kept by the company in the case of your death (in most cases). In other words, your family gets either the death benefit if the insured person dies or the cash value, but not both. In the rare case that you do get both, the premiums will end up being higher to compensate.
Salespeople will usually try to sell you the wrong life insurance
If a life insurance person ever comes to your house, 99 times out of 100 he/she will try to sell you some type of cash value life insurance. There is a reason for that. The insurance salesperson does not have your best interest in mind, he has his commission in mind. Cash value life insurance pays very healthy commissions, whereas term life insurance pays very little commission. An insurance sales person will not sell you term life insurance, even though it is better for you, because he/she cannot make a living selling it. If you want to make a wise decision and get a term policy, you will have to be educated enough to ask for it because it will not be sold to you.
Buy term and invest the difference
The best way to protect your income with life insurance and at the same time save and invest money for retirement is not to mix the two together, but do something called "buy term and invest the difference". Because term costs so much less than cash value, you take the difference you save and invest it separately. As you pay down your debts and increase your net worth through saving, eventually you will be self insured and after your term policy expires you will never have to pay life insurance premiums again, which means you can begin saving that much more.