Whole Life Insurance

Whole Life Insurance
Life insurance comes in two basic forms: term insurance and permanent insurance. Unlike permanent life insurance that can be in force for an insured’s entire life, term life insurance is temporary. Term life insurance pays a death benefit to the beneficiary if death occurs within a specified period, or “term.” If the insured survives the term for which the life insurance was purchased, the policy ends without further value.

Permanent life insurance is designed to remain in force for the insured’s life, regardless of how long that life is. In addition to providing a tax free death benefit that is payable to the policy beneficiary upon the insured’s death, permanent life insurance also builds cash values that the policy-owner can access while the insured is alive.

​The term “permanent life insurance” includes a variety of life insurance policies, including whole life insurance. For over 175 years, whole life insurance has been the “flagship” product of the life insurance industry. Whole life insurance continues to be popular with many policy-owners.

Characteristics of Whole Life Insurance

Whole life insurance provides the most significant guarantees of any life insurance policy. Traditional whole life insurance provides level life insurance coverage for the insured’s entire life. Premiums can be structured to be paid until the insured’s death or a specific period of time. The premiums for whole life insurance are higher than term insurance premiums for an identical insured purchasing the same death benefit in the earlier years of the policy but are significantly lower than term insurance premiums in later years.

Whole life insurance can be the appropriate form of coverage to meet many policy-owners’ needs. Some of its important features include guaranteed cash values, premiums, and death benefits. In addition, if the policy is a participating policy, the policy-owner is eligible to receive dividends when and if declared by the insurance company issuing the policy. Dividends also receive favorable tax treatment. Specifically, because dividends are deemed to be a refund of unearned premium.

Whole life insurance is also characterized by its high degree of safety. Because whole life policies include insurance and savings elements, they are often part of long-range financial planning. Whole life insurance can meet many needs but is particularly well-suited to needs that tend not to diminish over time, such as paying estate settlement costs and taxes.

Traditional life insurance, of which whole life insurance is a classic example, is backed by the financial strength of the insurer issuing it. The insurer’s general account assets, the investment of which is heavily regulated by state insurance departments, guarantee payment of the promised traditional life insurance benefits. The general account portfolio of life insurance companies is regulated for safety and stability and is invested primarily in bonds and mortgages.