About Whole Life Insurance

Whole life insurance is a popular type of permanent life insurance. Find out about whole life policy options, how whole life insurance rates differ from term rates and whether cash value insurance is right for you.

Understanding Whole Life Insurance

Unlike term life insurance, which provides death benefit protection only during a specified term, whole life insurance provides a safe, tax-deferred investment with lifelong insurance protection--as long as you keep up with your premiums.

Whole life insurance rates are based on the same factors as any life insurance policy, such as your age, health, occupation, amount of insurance purchased and even your credit score. A portion of your whole life premiums paid is invested for you. You can keep this investment portion--or cash value--of your policy if you decide to terminate it for any reason.

Cash value insurance rates are generally higher than those of term life plans. However, they will be lower than what you'd pay in the later years of your life if you kept renewing your term plan.

Basic Whole Life Policy Plans

All whole life insurance plans fall into two basic categories:

• Non-participating whole life insurance: This type of insurance maintains a level premium rate and face amount as long as you live. It doesn't pay any dividends.
• Participating whole life insurance: When you choose a participating whole life policy, you may be paid dividends if the investment component does well enough. These dividends can be used to reduce your premium costs, accumulate at interest or be paid to you if desired.

Specific Whole Life Policy Options

Once you've decided whether non-participating or participating whole life plans better suit your needs, you can select a more specific whole life insurance plan, such as:

• Level premium whole life: With this option, you pay a fixed premium rate over the years. During the early years, this rate is higher than needed to maintain the policy. The insurer invests this excess to create the policy's cash value, which covers higher costs of later years.
• Limited payment whole life: With this type of policy, you have the option of only having to pay premiums for a limited period of time.
• Single payment whole life: Single payment plans allow you to pay one large premium payment at issue and then be covered for life with no further payments required.