Whole life insurance provides coverage for the entire life of the policyholder. Whole life insurance has a fixed premium throughout the lifetime of the insured (although some other types of whole life insurance have varying premiums.) The amount of premiums paid build up cash value that may be paid out to the policyholder when he or she surrenders or partially surrenders the policy. Whole life insurance policy owners can use the cash reserves as collateral for low-interest loans or to roll back into the policy to fund future premiums. Some firms share investment proceeds with policyholders in the form of a dividend.
Benefits:
Whole life insurance provides the insured with uninterrupted coverage until his death, unless cancelled sooner. Straight whole life insurance has a premium that is fixed and predictable. The cash value may be accessed during the life of the insured either as collateral for a loan or to fund future premiums. The annual increase in the cash value of the policy is not taxed. If the policyholder surrenders the policy, a portion of the payment is not taxable.
Disadvantages:
Whole life insurance of this type has no investment interest income beyond the amount of premiums paid in.
