Whole Life Insurance is a type of permanent life insurance policy that provides coverage for the insured’s entire lifetime, as long as premiums are paid as required. Unlike term life insurance, which only offers protection for a specified period, whole life insurance remains in effect until the death of the policyholder or until a maturity age specified in the policy, often 100 years old.
One key feature of whole life insurance is the cash value component, which grows over time on a tax-deferred basis. A portion of each premium payment is allocated to the cash value, which can be borrowed against or withdrawn by the policyholder under certain conditions. The cash value accumulation can be used for various purposes, such as supplementing retirement income, funding education costs, or providing liquidity for emergencies.
The premiums for whole life insurance are typically higher than those for term life insurance because they not only provide life insurance coverage but also contribute to the cash value accumulation. These premiums are usually fixed and do not increase as the policyholder ages. Upon the death of the insured, the policy pays out a death benefit to the beneficiaries, which is generally tax-free. The death benefit can be used by beneficiaries for any purpose, such as covering funeral expenses, paying off debts, or providing financial support.
Whole life insurance is often chosen by individuals seeking both insurance protection and a savings element, as well as those looking for the certainty of fixed premiums and a guaranteed death benefit.