Whole Life Insurance
Whole life insurance is a permanent life insurance policy that provides lifetime coverage with fixed premiums, a guaranteed death benefit, and cash value that grows at a guaranteed rate.
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Exam Tip
Whole life = permanent, fixed premiums, guaranteed cash value. Know dividend options: cash, reduce premium, accumulate, paid-up additions.
What is Whole Life Insurance?
Whole life insurance (also called "ordinary life" or "straight life") is permanent insurance that covers you for your entire life. It combines a death benefit with a savings component called cash value.
Key Features
| Feature | Description |
|---|---|
| Lifetime Coverage | Never expires if premiums paid |
| Fixed Premium | Same payment for life |
| Guaranteed Death Benefit | Known amount to beneficiaries |
| Cash Value | Guaranteed growth rate |
| Dividends | Participating policies may pay dividends |
How Cash Value Works
| Year | Premium Paid | Cost of Insurance | Cash Value |
|---|---|---|---|
| Early years | Higher than needed | Lower | Builds slowly |
| Middle years | Appropriate | Moderate | Grows steadily |
| Later years | Lower than needed | Higher | Supplements premium |
Cash Value Uses
| Use | Details |
|---|---|
| Policy Loans | Borrow against cash value |
| Surrender | Cancel policy, receive cash value |
| Paid-Up Insurance | Convert to smaller paid-up policy |
| Premium Payment | Use to pay premiums |
Whole Life vs. Term
| Feature | Whole Life | Term Life |
|---|---|---|
| Duration | Lifetime | Specific period |
| Premium | Fixed, higher | Lower, may increase |
| Cash Value | Yes | No |
| Best For | Permanent needs | Temporary needs |
| Cost | Higher | Lower |
Types of Whole Life
| Type | Description |
|---|---|
| Ordinary (Straight) | Pay premiums for life |
| Limited Pay | Pay premiums for set period |
| Single Premium | One lump sum payment |
| Modified | Lower premiums initially |
| Graded Premium | Premiums increase over time |
Dividend Options (Participating Policies)
| Option | What Happens |
|---|---|
| Cash | Receive dividend as cash |
| Reduce Premium | Apply toward next premium |
| Accumulate | Leave with insurer at interest |
| Paid-Up Additions | Buy additional coverage |
| One-Year Term | Buy additional term coverage |
Exam Alert
Whole life = permanent coverage + fixed premiums + guaranteed cash value. Cash value grows tax-deferred. Policy loans not taxable if policy stays in force. Know dividend options for participating policies.
Study This Term In
Related Terms
Term Life Insurance
Term life insurance provides death benefit protection for a specific period (term), with no cash value accumulation, offering the lowest premium for the highest coverage.
Universal Life Insurance
Universal life insurance is a permanent life insurance policy with flexible premiums and death benefits, plus a cash value component that earns interest based on current market rates.
Cash Value
Cash value is the savings component of a permanent life insurance policy that grows tax-deferred and can be accessed through loans or withdrawals during the policyholder's lifetime.
Death Benefit
A death benefit is the amount of money paid to beneficiaries upon the death of an insured person, typically the face amount of a life insurance policy.
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