Whole Life/Permanent Insurance
Unfortunately, whole life is over-sold by a lot of agents because it pays a much higher commission....there I said it. But also very unfortunate is the fact that whole life gets a very bad reputation from people that just don't understand it. Permanent insurance can and should have a place in many people's financial plans.
Whole life or permanent insurance pays a death benefit
whenever you die—even if you live to 100! Term insurance cannot do that since most term polices will stop before the age of 80 or 85. However, to get that guarantee, the cost for whole life is much more expensive than term. On average, it will cost 10x the amount of term.
There are three major types of
whole life or permanent life insurance—traditional whole life, universal
life, and variable universal life, and there are variations within each
In the case of traditional whole life, both the death benefit and the
premium are designed to stay the same (level) throughout the life of the
policy. The cost per $1,000 of benefit increases as the insured person
ages, and it obviously gets very high when the insured lives to 80 and
beyond. The insurance company could charge a premium that increases each
year, but that would make it very hard for most people to afford life
insurance at advanced ages. So they keep the premium level by charging a
premium that, in the early years, is higher than what’s needed to pay
claims, investing that money, and then using it to supplement the level
premium to help pay the cost of life insurance for older people.
By using this method, most whole life policies will build cash value. The amount of cash that builds will vary depending on the performance of the company (expenses and claims) and the performance of the investment of premium dollars recieved.