Whole Life Insurance

A Whole Life insurance policy covers the insured person(s) for their entire life, up to age 100 years. Whole Life policies pay the Face Value when the Insured dies or reaches age 100.

 Part of the Whole Life premium goes to buy insurance protection and part goes to build a Cash Value. The Cash Value is guaranteed by the Insurer as long as the policy is in force. The Cash Value is retained by the company when the Insured dies while the policy is still in force. The Cash Value goes up each year that the premium is paid.

 Some state laws require that Cash Value MUST exist by the end of three years.

The Cash Value can be borrowed by the policy owner, this creates a loan against the policy, which results in a lower death benefit if the loan is not repaid.

Whole Life Insurance is called "Straight Life", or "Continuous Premium Whole Life" or "Ordinary Whole Life". It is kept in force by paying a level premium for your entire life, up to age 100 years. At age 100, the policy is said to have "matured". At maturity the Cash Value of the policy will then equal the Face Value.

In all Level Premium Plans, the insurance company overcharges the Insured in the early years and undercharges in later years.

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Whole Life policies do not have to be renewed or converted into any other type of policy. The term "Straight Life" refers to the length of premium payment period, which occurs during the remainder of your whole life.

Limited Payment Whole Life Plans - In a Limited Payment Whole Life policy, you pay the same overall premium as for a permanent Whole Life policy, but over a shorter period of time (e.g. 20 Pay Life or Paid Up at 65). Hence, the annual premium for a 20 Pay Life plan may cost a 25 year old around $20.00 (example) per thousand, whereas a Straight Life policy mught be $10.00 (example) per thousand.

 A)Limited Payment Whole Life plans have a higher annual premium and faster Cash Value build up than regular Whole Life. However, the policy still matures at age 100 years, even though the premium payment period stops prior to age 100. In a 20 Pay Life plan, the payments stop at 20 years. At the end of the premium payment period, the Cash Value is less than the Face Value. However, the Cash Value continues to increase and at age 100 the Limited Payment Whole Life policy's Cash Value equals its Face Value.

B)The shorter the premium payment period, the faster the Cash Value increases. For example, if a 30 year old person buys a $100,000 20 Pay Life plan and a $100,000 Paid Up at 65 plan, the 20 Pay Life plan will build Cash Value faster, and both policies mature at age 100.

The Cash Value in Whole Life policies is a built in savings plan which can be used for retirement, education, emergencies, ect. Because the Insured can borrow the Cash Value, Whole Life policies are not used to pay off loans. You would use "Term type" Mortgage Insurance.

Cash Value in a Whole Life Insurance policy accumulates on a tax deferred basis. When you cash in a Whole Life policy, no income taxes are due if the total value of premiums you paid exceeds the policy's Cash Value.

Whole Life Insurance provides increasing savings (Cash Value increases each year) and decreasing insurance protection because the Cash Value is retained by the company when a death benefit is paid to a Beneficiary. The company pays the Face Value and keeps the Cash Value upon the death of the Insured person(s). The Cash Value of the policy can be borrowed.

Economic Value of Whole Life - Whole Life Insurance provides the least expensive "permanent" insurance available. (Term and Endowment are not permanent insurance; they cover you for a limited period that is stated in the policy). You would buy Whole Life Insurance if you wanted the lowest cost permanent insurance with a built in savings plan. You would buy a limited plan if you NEVER wanted to PAY another premium after a stated time and wanted to acquire lifetime insurance coverage.

Current Assumption Whole Life - This policy uses current interest rates in projecting future Cash Value Rate of increase and it uses an indeterminate premium structure, called a "re-determination provision". The policy premium could go higher or lower, but the Face Value would not go down. One version of Current Assumption Whole Life has a Vanishing Premium Provision. This provision allows premium payments to stop because it uses the Cash Value to buy a "Paid Up" policy.

Graded Premium Whole Life - This is a rare type of Whole Life Insurance in which the premium is much cheaper in the early years, and goes up each year, until year 10 or 20, ect. and then it remains constant. The insurance company undercharges in the early years. (Note: in Level Premium plans the company OVERcharges in the early years and UNDERcharges in the later years). The Cash Value build up is much slower than Straight Whole Life Insurance.