- Similar to other life insurance policies, whole life insurance insures the life of an individual (called the named insured) in return for the payment of a premium. The insurance company pays the named beneficiary the amount of the death benefit indicated on the policy when the named insured dies.
- Whole life insurance is essentially a contract. It provides life insurance coverage for the individual's lifetime (whole life); the premium is payable at a set amount each month for a specified number of years until the premium is paid in full. During the time payments are being made, the life insurance benefit is 100 percent---meaning if the named insured dies before the contract is paid in full (and is current on all payments to that date)---the policy will still pay the full death benefit to the beneficiary. When the contract is fully paid, the named insured no longer pays a premium, but the death benefit remains the same.
- Whole life insurance policies require higher payments than term life insurance policies, but a portion of each premium is invested on behalf of the named insured and earns interest---some of which may be paid back to the insured in the form of dividends with some plans---and the policy acquires a minimum cash value. In addition, whole life insurance payments are fixed over a period of time and will not increase with age.
- Owners of a whole life insurance policy can often borrow against the cash value in their policy at a reasonable interest rate, which can make that more attractive than obtaining a loan from other sources.
- Some individuals consider a whole life insurance policy as a form of retirement savings because it does earn interest. There is a minimum cash value, so they can utilize this money---or borrow from it---in their retirement years.
- For young individuals who are currently healthy, but also have certain kinds of diseases more prevalent in their families---such as parents who both had cancer, heart disease, or other conditions that could be inherited---and are concerned that they may not always remain healthy and "insurable," purchasing whole life insurance when they are still young and healthy can ensure they will have the life insurance coverage they need when they are older and in poorer health.
- If you have a terminal illness---or have had a serious life-threatening illness, you may be unable to purchase traditional whole life insurance because you may be considered "uninsurable." Also, if you have high-risk hobbies, a dangerous job or one of numerous chronic illnesses or health conditions, whole life insurance will cost more for you to obtain than a lower-risk individual. Suicide, and certain other circumstances, may not be covered under many life insurance policies.
