Whole Life Insurance


Whole life insurance is also referred to as permanent life insurance.  Coverage remains in effect as long as the policyholder continues to make annual premium payments.


Whole life insurance is marketed as a policy that is designed to last for the policyholder's "whole" life.  These life insurance policies include level premiums plus the accumulation of a cash value account.  This makes whole life a good choice for consumers with long-range insurance goals. The cash balances associated with these policies can provide money to help fund temporary financial needs or emergencies.

The total cash value depends on the type of whole life policy purchased, its size, and how long it is in existence. The growth in cash value is tax-deferred under current federal income tax law.  The premiums for whole life insurance fall somewhere in-between the less expensive term life insurance and more expensive universal life policies.

There are many types of whole life plans sold in the United States.  Participating whole life plans allow the policyholder to "participate" in excess profits (fund investments do better than planned) and losses.  Participating plans shift the risk the fund will underperform relative to expectations to the policyholder.  Policy premiums will be lower, but when the fund under-performs, additional premiums may be needed to make up the shortfall.

With non-participating policies, the insurance carrier assumes the risk the fund's investments will under or over perform relative to expectations.  Premiums will be higher, but the policyholder is insulated from the additional payments that could be necessary under participating plans.

It's also possible to purchase single premium policies, which allow for a one-time premium payment.  Limited pay policies are also available, which allow the policyholder to pay for a certain term (typically 20 years), after which the policy is paid in full.

Related Terms

universal life insurance, term life insurance, absolute beneficiaryaccidental death benefit