YOU ASK:

What is whole life insurance?

WE ANSWER:

Whole life insurance, also called ordinary or straight life insurance, is a type of cash-value policy that provides permanent protection, and is thus the best choice for people with long-term insurance needs.

Whole life insurance is the oldest and still the most popular type of policy. People opt for it because it boils down to two simple rules:

The insurer determines a fixed premium rate for life, which the applicant has to accept.
The insurer pays the agreed death benefit to the designated beneficiary when the insured dies. Or else, if the insured lives to the end of the policy period (usually until age 99), the policy owner receives the full face amount.

Whole Life Insurance Basic Characteristics

Once determined by actuaries, whole life insurance premiums are not subject to change: they remain fixed and level. Whole life insurance premiums are sometimes very steep, especially in the first years of the whole life policy. The idea behind this practice is that you overpay in the early years, in order to underpay in the later years of the policy. Hence the advantages of keeping a whole life policy for a longer period of time.
The amount that the policyholder overpays in the early years of the policy, builds up a cash value which belongs to the policyholder. They can decide to cash the policy in, take out a policy loan, or let a substantial sum accumulate and then invest it in special-purpose funds.
You can choose between a participating and non-participating policy. In the case of the former, you are charged a higher premium and are entitled to receive dividends. You can then receive them in cash, use them to purchase paid-up additions or term insurance, for premium reduction, or let them accumulate interest.
Whole life policies are the least flexible out of all life insurance options. You have to pay the premiums on time, otherwise the policy will lapse.
With whole life insurance the insurer takes all the risks, you take none.

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