Life Insurance

Whole Life Insurance

Whole life insurance, or permanent life insurance, is coverage effective for the entire lifetime of the policyholder. A whole life policy will pay out the death benefit when the policyholder dies, or else on the policy's maturity date (typically the policyholder's 100th birthday).

Whole life coverage provides a fixed amount of life insurance for a fixed premium amount. Coverage increases only with the purchase of an additional policy, or in some cases through additional riders purchased and/or dividend amounts paid by the insurance company.

Unlike term life insurance, this type of coverage has a cash value which accumulates from the premiums paid over time. The earnings for tax purposes include only the amount accumulated in excess of policy premiums paid (taxes may be due upon policy surrender).

Whole life insurance policies that have built up a cash value allow the policyholder to take out loans on the policy for up to the amount of the cash value. The loans accumulate with interest, but repayment is not required prior to the policyholder's death (any unpaid loan amounts are deducted from the death proceeds paid to the policy's beneficiary).

In the event the policyholder misses a premium payment, the insurance company can draw from the policy's cash value to keep the policy in force, but only if such a provision is included in the policy contract (or if the insured has given the proper authorization).

The policyholder can choose to terminate premium payments and use the cash value to continue the policy at a reduced level of protection (reduced paid-up insurance), or continue the same level of protection for a specified time period (extended term insurance option).

Other possible uses of the cash value include buying an annuity that provides a guaranteed monthly income for a specified time, or posting the cash value as collateral to borrow funds from a bank. The policy's accumulated cash value also can be assigned to a lender.

Each whole life policy contains a table showing how much cash value it accumulates over time. The longer the policy is in force, the higher is the policy's cash value. The cash value can be taken in a lump sum; in this case the policyholder owes taxes if the sum of the cash value and policy dividends (if any) exceeds the total premiums paid into the policy. It should be observed that due to surrender charges, a policy surrender during the early policy years may result in a lump sum payment much lower than the premiums remitted to date.

Some whole life policies (offered by mutual companies) are called "participating" or "par" policies, which mean that policies earn dividends. Policy dividends may be taken in cash, used to reduce premiums or to buy more insurance coverage. Dividends are considered a refund of excess premium and typically are not subject to taxation.

Whole life insurance is a useful vehicle to cover death and burial expenses, since the policy is designed to stay in force until the time the policyholder ultimately dies. This type of coverage also may be purchased to cover estate/probate taxes, or simply for an additional layer of security as the policyholder might rely on the cash value as an emergency fund.

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• Term Life Insurance
• Whole Life Insurance
• Universal Life Insurance
• Accelerated Death Benefits and Viatical Settlements
• Life Insurance/Long Term Care Combination Policies