Whole Life

Whole Life insurance is a product designed to offer a death benefit that is level throughout the life of the policy and the premium also stays level for the entire life of the policy.  It usually lasts until age 100, however, with people living longer, most insurers are expanding this to older ages such as age 110 or even 120.  Whole Life insurance was conceived to allow people to better budget for their life insurance needs by keeping the premium level their entire life.  Whole Life is more expensive than Term Life because in order for the insurer to be able to keep the premiums level in later years (as the policyholder gets older and mortality rates are higher) the premium has to be increased for the younger years, to offset the later years.  The concept is that in the earlier years of the policy, when the insured is younger, any premium being paid into the policy that is not required for mortality and other expenses of the policy is set aside in a separate account that pays interest and grows into a cash value.  This cash value can then be used in later years to guarantee the level premiums won’t need to be increased.  When the insured dies, the original death benefit is paid to the beneficiary and the cash value is returned to the insurer.  The cash value can be borrowed from by the insured at any time during the life of the policy, but the amount will need to be paid back into the policy before death or any loan balance will reduce the death benefit at the insured’s death.

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