How Does Life Insurance Build Cash Value? 
This can be complicated but I will try to keep it simple . If you have a Whole Life Policy , the premium is based on how long you are expected to live , averaged out over that length of time the policy is expected to be in force . Term Insurance seems cheaper because it is not designed to cover you for your whole life . That is why the cheapest form of life insurance is one year term . Every time a term policy renews the premium goes up until it eventually becomes unaffordable . Because a whole life policy averages these premiums out , you are paying more in the early years than term but in the later years you premium would be less than term , since the policy does not need to renew . The excess money collected in the early years is invested and after expenses the balance is put into the cash value . They use a lot of complicated formulas to determine this but this is a simplified explanation . 