Whole Life Insurance

Whole life coverage

Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy. The primary disadvantages of whole life are premium inflexibility, and the internal rate of return in the policy may not be competitive with other savings alternatives. Also, the cash values are generally kept by the insurance company at the time of death, the death benefit only to the beneficiaries. Riders are available that can allow one to increase the death benefit by paying additional premium. The death benefit can also be increased through the use of policy dividends. Dividends cannot be guaranteed and may be higher or lower than historical rates over time. Premiums are much higher than term insurance in the short term, but cumulative premiums are roughly equal if policies are kept in force until average life expectancy.

Cash value can be accessed at any time through policy "loans" and are received "income-tax free". Since these loans decrease the death benefit if not paid back, payback is optional. Cash values support the death benefit so only the death benefit is paid out.

Dividends can be utilized in many ways. First, if Paid up additions is elected, dividend cash values will purchase additional death benefit which will increase the death benefit of the policy to the named beneficiary. Another alternative is to opt in for 'reduced premiums' on some policies. This reduces the owed premiums by the unguaranteed dividends amount. A third option allows the owner to take the dividends as they are paid out. (Although some policies provide other/different/less options than these - it depends on the company for some cases)