Just as the name implies, this type of life insurance is purchased to cover the whole life of the policy owner, not merely a specified period. This is a given, regardless of how long you have the policy or how many premium payments have been made.

When it comes to the subject of premiums, these will be paid throughout the life of the person being insured, or for a certain segment of their life. For example, some choose to pay their insurer more at the outset, and to discontinue their premiums when they reach the age of 65. Alternatively policy holders also have the option of paying their premiums in lump sums once the policy has been taken out.

Generally the premiums will remain level throughout the duration of the policy, while the insurance company invests a certain portion of the amount you have paid. These level premiums are usually based on averaging out the cost of your whole life policy over the full period that it remains active.

Cash Value Portion

When you obtain whole life insurance, the premium you pay is split up to cover different expenses. The first part of the premium payment covers the insurance portion of the policy, the second part goes toward administrative expenses, and the remainder makes up the investment or cash portion of the policy.

This cash value portion belongs to the insured individual and may be taken out when the policy is cashed in, or otherwise as policy loans. The investment portion of the policy may consist of stocks, bonds, or mutual funds. Usually the interest drawn on the investment portion of the policy is tax-free, until it is withdrawn.

Riders

Most insurance companies will offer you whole life cover with the option of ‘riders’ as part of the policy structure. Referred to as such by industry insiders, riders allow you to increase your cover at a maximum of 20% each time, during predefined intervals, without you having to provide evidence that you are in good health. The benefit of riders is that they allow you to increase the death benefit, if you are prepared to pay the additional premium.

What Does it Include?

• It pays a death benefit to your designated beneficiary.
• It offers policy owners a low risk cash value account and tax-free cash accumulation.
• The insurance company exclusively manages the cash value account in your policy.
• You get a fixed premium which doesn’t increase during your lifetime, as long as you continue to pay the intended amount.
• You have the option of receiving dividends from your policy or you can apply them to reduce payments.
• At any time during your lifetime, you have the right to withdraw from the policy.

What Does it Exclude?

• You don’t have the account flexibility to split your money or move it between different accounts.
• Nor do you have the account flexibility to invest in separate accounts like money market, stock, and bond funds.
• It doesn't offer you face amount flexibility or premium flexibility.

Make it Affordable

Obtaining life insurance can often be an expensive procedure, but with a whole life policy, there are ways to make it more affordable – without missing out on the benefits. By providing you with the option to borrow against the cash value that is built into your policy, you can use the funds to cover whatever expenses you wish – regardless of whether it is an unexpected retirement or to fund your children’s education. Even though you’ll have to pay it back, the interest rate will be significantly less than what a bank would charge.