Whole Life Insurance

Whole life insurance, sometimes called "permanent insurance," or "ordinary life," is designed to stay in force throughout one's lifetime. As long as the policy owner meets his or her obligations under the policy, the policy remains in force, regardless of any changes in health that may occur.

Unlike term insurance, where premium payments generally increase as the insured gets older (the chance of death increases with age), premiums for most whole life policies remain level. A portion of each premium payment is set aside to earn interest. Over time, a whole life policy will develop "cash values." The accumulated cash values form a reserve which enable the insurer to pay a policy's full death benefit, while keeping premiums level.

Common Uses of Whole Life

Whole life policies are well suited for needs that do not diminish over time. Some commonly found uses for whole life are:

  • Family Protection: To provide the funds to support a surviving spouse and/or minor children, particularly for individuals who start a family later in life; to pay final bills such as medical or other estate expenses, as well as federal and state death taxes.
  • Business Planning: Whole life insurance is often used for many different business purposes, such as insuring key employees, in split-dollar insurance arrangements, and funding nonqualified deferred compensation plans. Business continuation planning often involves using whole life as a source of funds for buy-sell agreements.
  • Accumulation Needs: Some individuals will use the cash value feature of whole life as a means of accumulating funds for specific purposes, such as funding college education, or as a supplemental source of retirement income.
  • Charitable Gifts: To provide funds for a gift to charity.