How does Whole Life Insurance Function

Whole life insurance is a type of life insurance that remains in force for the entire life of the insured party. whole life insurance is also known as whole of life assurance, and normally requires the payment of continual annual premiums in order for the contract to remain in force. In the past all life insurance was in the form of term insurance, which only pays a death benefit within a stated contract term. However, whole life contracts were developed as lots of people became annoyed that they could be paying premiums for 20 to 30 years without having anything to show for it. Whole life policies provide a level premium and a guaranteed cash value payment, that insurance companies work out from a cash value table that is included in the policy agreement.

There are a number of advantages of a whole life insurance policy over a term contract, including guaranteed death benefits, guaranteed cash value amounts, fixed premium prices, known premium prices, and expense charges that do no reduce the final cash value of the policy. However, these types of whole life contracts are not for everyone, and there are also a number of disadvantages when they are compared to traditional term life insurance. Whole life insurance is not very flexible, nor is it competitive with other forms of savings in terms of the internal rate of return. Also, in many policies any accumulated cash value will be kept by the insurance company at the time of death, with the beneficiary only getting the death benefit amount.

Whole life insurance is a type of permanent life insurance contract, along with other permanent policy types like universal life, limited pay, and endowment policies. In a whole life policy, the cash value of the contract can be accessed at any time through policy loans, and while paying back these loans is optional, they do decrease the death benefit if they are not paid back. The function of whole life insurance is to provide people with a structured and life long contract, where a death benefit is stipulated but a cash value amount can also be used while the insured party is alive.