Characteristics

• Whole life policies, unlike term life policies, involve a level premium throughout the life of the policy. In addition to the death benefit, whole life policies also provide a cash value. Throughout the life of the policy, the cash value accumulates until it reaches the policy face amount when the policy owner reaches the age of 100. The owner may borrow money or make withdrawals based upon the cash value he builds throughout the term of the policy, and the insurer will pay the death benefit to the named beneficiary upon the policyholder's death.
  
  

Types of Policies

• Many different types of whole life policies exist so the insurance purchaser can select the one that is most appropriate for him and his family. The different provisions are available according to how the owner prefers to pay premiums: over the life of the policy, for a limited time or in one lump sum, in equal payments, or reduced in initial years and increasing over his life. He may also select a variable life policy that has fixed payments but a fluctuating death benefit and cash value based on the performance of the underlying portfolio. Finally, for married couples, a joint life policy is available that will cover both individuals.
  
  

Policy Riders

• Policy riders for all insurance policies are an additional feature that increases the cost of the premiums but provides an extra feature to the insured or the beneficiaries. Generally, the policyowner selects which riders he would like to include as he builds the contract. Riders for whole life policies include waivers of premium, accidental death benefit, spouse and child insurance, term insurance, living benefits and paid-up additions. The insurer can provide more in-depth detail as to exactly what the expense accords the policyowner, as it is often different for each insurance company.
  
  

Advantages and Limitations

• Whole life policies offer the benefit of tax-deferred accumulations that the owner may withdraw, without a requirement to repay, should he need to do so. Unlike term policies, they also offer the benefit of lifetime coverage. However, there are also disadvantages to this type of policy. The premiums are inflexible, there is often a low rate of return resulting in only a gradual build of the cash value and a surrender charge is often applicable. A surrender charge is an amount the company charges to cancel a policy early, which, in this case, is before the person turns 100 years old.
  
  

Estate Planning

• For purposes of estate planning, whole life policies can provide peace of mind to an individual without a lot of assets and with a family to provide for. It can help to cover the cost of remaining debts, funeral arrangements, medical costs prior to the owner's death and expenses of distributing the estate. However, those that do not foresee death or family provisions being a significant issue later in life may prefer to look into term life policies. While some use whole life policies as a tax-deferred investment vehilce, the returns seldom outperform the fees by a significant amount.