Whole life insurance, sometimes called straight life or permanent life, is protection that can be kept as long as you live. This is what is typically thought of as traditional life insurance. It enables you to pay the same premium over the years, averaging the cost of the policy over your lifetime.

 

Whole life insurance builds cash value, a sum that grows over the years, tax-deferred. If you cancel the policy, you receive a lump sum equal to this amount. If you need to stop paying premium due to a temporary financial crisis, you can use the cash value in the policy to pay those premiums for a period of time. You can also withdraw part of the cash value in the form of a policy loan.

The face amount in the whole life insurance policy is constant, and this amount is paid id you die at any time while the policy is in effect. The policy is designed to mature when you reach 100 years of age. If you do live to be 100, you won't have to pay any more premiums, and the policy's cash value will be equal to the face amount. So, the insurance company usually will pay you the face amount, even though you are still alive.

Although whole life insurance policies are among the most common forms of insurance sold, most individuals do not plan on paying premiums until age 100. More commonly, whole life insurance is used as a form of level protection during the income-producing years. At retirement, many people then begin to use the accumulated cash value to supplement their retirement income.

For instance, it may pay dividends. Whether or not it does is the primary difference between a participating policy, which is issued by a mutual whole life insurance company, and a nonparticipating policy, which is issued by a stock life insurance company. A participating policy is one which the policyholders receive dividends.

Many people use these dividends to buy additional amounts of insurance, instead of taking the cash. This is really no different than taking a few extra dollars out of your pocket and making a separate purchase. Still, dividends are often a successful sales tool, because some people like the idea of getting something extra back, even though they have paid more initially.

One of the benefits of a whole life insurance policy is that it guarantees the level of premiums you pay, the death benefit and the growing cash values within the policy. It also guarantees the interest rate on any loans you take out against the cash value of the policy as collateral, the guaranteed interest rate in the policy may be much lower than that available from a bank. The only feature that is not guaranteed is a dividend in a participating policy.

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