Whole Life Insurance

Whole life insurance is a type of permanent life insurance that covers the policyholder for as long as they continue to make their premium payments. Unlike term life insurance which provides coverage for a predetermined number of years, whole life insurance can provide death benefit coverage for as long as the policyholder lives.

Like other permanent life insurance products, whole life accumulates a cash value as the policyholder makes payments. A portion of each regular premium payment increases the guaranteed cash value of the policy, and once the cash value reaches a certain level, the policyholder can borrow against it. If there is a loan in force against the whole life policy upon the death of the policyholder, the amount that is owed is simply deducted from the death benefit before the payment is made to the beneficiaries.

The amount of the cash value associated with a whole life insurance policy depends on the specific type of policy, how long the policyholder has owned the policy, and the size of the policy. Under current income tax laws, the growth in the cash value is tax deferred.

Another feature of some whole life policies are dividends. As the policy`s cash value accumulates in what is known as a participating whole life policy, dividends are often paid out to the policyholder. Dividends result when the actual cost of the life insurance turns out to be lower than the insurance company`s projections; since the actual costs cannot be predicted with accuracy, dividends are not guaranteed.

The premiums paid for a whole life insurance policy are higher than the premiums for a term life policy, since term life insurance carries only a death benefits with no cash value. Premiums for a whole life policy are lower when the policyholder is younger, and they stay level as the policyholder ages. This is why insurance experts advise consumers to buy a whole life insurance policy when they are younger.

Whole life insurance is not for everyone, but the cash value aspect of these policies makes whole life a good choice for conservative investors who like the idea of building value using an insurance product. In addition, for those who can afford the premiums, whole life insurance can be a wise choice for young policyholders who like the idea of locking in their premium for life.