Whole life insurance provides permanent protection for those dependent on you while building a cash value savings account. Traditionally, a (WL) policy guaranteed coverage until age 100. At that point, if the insured was still living, the policy would endow or pay out the full face amount to the insured or to the designated beneficiary.

Some newer whole life policies are currently extending coverage until age 120 with payments stopping at age 100 since people are living longer. In a WL policy, the life insurance company invests your money in their own general investment account.

Since the insurance company assumes the risk, the guaranteed return on your investment is usually a very moderate amount of 3 or 4 percent. WL insurance offers a fixed payment that cannot be increased during the life of the policy as long as you make your payments.

A mutual life insurance company will usually offer a “participating” policy that pays dividends which can be taken in the form of a check or can be reinvested back into the policy to reduce your future payments or to buy additional paid up amounts of coverage. Whole life policies that are issued from stock companies usually do not offer dividends to the policy holder because the dividends are paid out to the stockholders annually.

Dividends are excesses of paid premium. A life insurance company sets its initial premiums based on conservative assumptions to ensure that they collect enough money to be able to honor their promises to policyholders despite possible future adverse economic conditions and other scenarios.

It is important to know that dividend payments are not guaranteed. Dividends can be declared by the insurance company for several reasons such as, a better return on investments than expected or paying fewer death claims than expected. 

Although WL policies give you the option to withdraw some of your cash value during the life of the policy, they are not as flexible as other types of permanent life insurance. Neither the premiums nor the death benefit can be changed, however additional riders may be purchased that will allow the owner to increase the death benefit at certain specified ages. The guaranteed life insurance in a whole life contract is an attractive feature for individuals who do not want to assume any risk.

Whole Life Does:

• Offer permanent protection to age 100 or 120      
• Build cash value that is tax deferred       
• Provide a fixed payment for life with guaranteed cash values

Whole Life Does Not:

• Offer payment or death benefit flexibility   
•  Allow the policy holder to manage how the cash value is invested