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What Is Whole Life Insurance?
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A question commonly asked is “what is whole life insurance?” This is an important question to ask, and to understand the answer, before buying any life insurance product.

Generally, there are 2 types of life insurance, term and whole. Term life insurance is in effect for a specific term, like 20 years. The person who buys it pays premiums for the term. If they die during the term, the insurance company pays a death benefit to whoever the owner of the policy has named to receive it. If the person does not die during the term, they get nothing.

Many people don’t like the idea of paying premiums for 10, 15, or 20 years and then getting nothing in return if they live longer than the term of their life insurance policy. So that’s why whole life insurance was invented. So what is whole life insurance? Simply put, it’s life insurance that is effect for your whole life. There is no term limit. The way it works is the company charges higher premiums than it would for a term life policy with a similar death benefit. Part of these premiums are put in reserve to build up cash value. So when the policy owner dies, his or her beneficiaries receive the death benefit plus the cash value.

There are many different forms of whole life insurance policies. It’s important to know which one you are looking at. A non-participating whole life policy means that all of the monetary amounts related to the policy are determined up front and are set for the duration of the policy. These amounts include the death benefits and premiums and cannot be changed.

In contrast, in a participating policy, the insurance company will pay some form of refund or dividend if the company has excess profits.

Occasionally when people ask “what is whole life insurance?” they are thinking about universal life insurance. Universal life insurance is a variation of whole life insurance. With universal life insurance, premiums are often flexible and sometimes don’t even have to be paid every month. Death benefits can also be adjustable. The idea is that that the money paid in will be invested and the earnings from the investments credited to the policy owner. However, in exchange for the potential reward, there are fees for all the flexibility on the premiums.

All of these forms of life insurance can be a little complicated to understand. So when buying, shop around for several quotes. When an agent presents you with an insurance product, don’t be afraid to ask even the basic questions, like “what is whole life insurance?”


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