Understanding Life Insurance

Whole Life Insurance

Whole life insurance derives its name from its design. It lasts for the insured's whole life; provided premiums are paid. Often considered traditional life insurance policies, whole life is the type of life insurance the public knows best. Unlike universal life insurance, whole life's cost of insurance remains level, which means its premium remains level. Whole life builds a CV without contributions beyond the level premium payments. The CV starts very small but builds over time, and then adds to the death benefit. The insured can also take a loan against the CV, though then the loaned amount no longer increases the death benefit.

Often, if experiencing financial trouble, the insured uses the CV to pay the premiums. Whole life policy premiums are many times more expensive than term premiums because the insurance company expects to pay the death benefit eventually. Premiums are substantially less expensive for young people, and it is for this reason many procure a whole life policy early in life. Younger people are also more likely to medically qualify, and insurance companies usually require extensive underwriting before insuring older people. Insurance companies may turn down those with prior health complications or offer much more expensive, high-risk coverage with no medical underwriting. Many individuals carry both whole life and term life policies, and always keep the whole life policy for final expenses.

Continue reading to learn about variable life insurance.