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Whole life

Permanent life insurance is a form of life insurance in which coverage is guaranteed for the life of the insured, as long as the policy is kept current. The policy has a living benefit, in which cash value accumulates and the insured can access it on a tax favorable basis. Policies which fall in the category of permanent insurance include whole life, universal life, and variable universal life.

 

Whole life is the only life insurance that offers a guaranteed death benefit, guaranteed cash value, and guaranteed premiums that will never increase as long as the premiums are paid.

 

A whole life policy is more expensive than a term policy, and this is because a policy will eventually have to be paid. The premium you pay is set accordingly, in which your age and health are taken into consideration. You build up cash value in whole life. The company basically takes your annual premium, deducts administrative fees and a profit margin plus the cost of the insurance, and invests the rest of your cash value in the life insurance company and its general account, which could include real estate, stock market, and bonds. The cash value grows tax deferred, meaning you don’t pay tax while it is growing every year, as you would on investments in an account outside of your 401k, or IRA. You can access this cash value for any reason. If you were to pass away after you took out a loan which wasn’t repaid, the death benefit which will be paid to your beneficiary will be the subtracted by the loan amount plus any interest which accrued. 

 

If you purchase a participating policy (issued by non public “mutual” companies), you are eligible to receive a portion of the divisible surplus every year, which is not guaranteed, but is declared when the company pays out lower than expected mortality claims, investment results which are higher than the guaranteed interest rate, and lower than expected other expenses. This dividend is declared every year, and fluctuates from year to year.