Whole Life Insurance

Whole life as the name implies, offers insurance coverage for the policyholders whole life or up to age 100. If the insured lives to 100, the cash value equals the face amount and is paid in a lump sum. The face amount remains the same throughout the life of the policy.

Since the face amount is payable upon the death of the insured, the element of risk is much different than it is for an automobile or homeowners policy. When the insurance company issues an auto or homeowners policy, it hopes the insured dosen't have an accident or claim. Unlike the whole life policy, the insurance company knows that one day they will have to pay a claim, because everyone dies.

Characteristics of Whole Life Policies

Level Premiums...premiums for whole life policies are level and guaranteed for the life of the contract.

Level Face Amount...generally, the policy's face amount will not change for the life of the policy.

Guaranteed Cash Value...unlike term life which is pure death protection only, whole life provides a guaranteed "living benefit" in the way of cash value. The cash value will slowly increase to the face amount in the event the insured lives to 100.

Reduced Paid-Up...the cash value of the policy is used as a single premium to provide life insurance on the same plan as the current policy itself.

If the insured decides to cancel the whole life policy, he or she may cash the policy in for the available cash value. The cash value can also be loaned to the policyholder.

If the policyholder takes a cash value loan and elects not to repay it, the amount borrowed will be subtracted from the face amount of the policy. Also, as a policy loan, it is also subject to interest. If this interest is not paid by the policyholder, it will become an indebtedness against the policy and will reduce the face amount of the policy.

Are you still with me?

       Lets look at the last part once more.......

The cash value can be loaned to the policyholder. The insurance company is loaning you, your money.

The policy loan is subject to interest. So not only is the insurance company loaning you, your money, they want you to pay interest on it.

Many insurance agents and financial advisors advise against owning a whole life insurance policy, in suggesting an individual purchase term life insurance and invest the difference in saving into a mutual fund. Although this is sound advice, noone can be certain of the future. Life circumstances can change at any given time making this idea less than feasible.

An advantage of whole life is that the premiums are level and will never increase with age, as long as the policy stays in force.