Whole Life Insurance: Assurance

Whole life insurance differs from term life in that it covers the beneficiary for his or her whole life at a fixed rate. The initial premiums on whole life are usually larger during this period than they are initially for term life, but with the benefit that the premiums never increase. This type of policy will also build up a cash surrender value where the individual can take cash while alive in lieu of a lump sum for beneficiaries at his or her death. By age 100 this amount will often equal the pay out.

There are various types of whole life policies. A participating policy (also known as "par" or "with profits") allows the policy-holder to participate in the profits made by the insurance company based on the number of claims paid out and other expenses of the company. This amount is non-taxable. Most companies that offer this are mutual life companies, where the policy-holders are considered co-owners. Some also allow the policy-owner to borrow on the cash surrender value of the policy with the interest payments also constituting part of the dividends paid.

In a non-participating whole life policy the benefits, premiums, and any dividends are determined by the contract or agreement. The insurance company then takes on all the risk, either profiting or not based on the wisdom of its own investments and the extent of the claims against the premiums.

A single premium policy is paid for in one single payment, up front. It is then good for the life of the individual. It may pay out like an annuity after age 59 1/2. It shares tax sheltering benefits at pay-out of most other forms of insurance. Some of these may be classed as MECs or Modified Endowment Contract, in which it may lose some of its tax benefits.

The single premium policy points the way to other vehicles such as the limited-pay policy which allows for premiums for a limited number of years up front. The policy, its benefits, and ability to accrue revenue through participation in a mutual company then could continue until the death of the policy-holder.

There are riders and other specifications which can be added to these types of whole life insurance policies making for a myriad of combinations. Generally the goal of whole life insurance is to provide insurance coverage throughout the lifetime of the policy-holder at a reasonable rate. It also can enhance the ability of individuals to pass along wealth to heirs and avoid the tax implications stemming from inheritance taxes. Finally, a whole life policy, structured like an annuity, may provide income and security after retirement.


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