A whole life insurance unlike a term life insurance is for a specific period of time say 30 or 40 years. That is the primary benefit of whole life: a payout is guaranteed. You will not have to worry about becoming uninsurable later in life, and unable to obtain life insurance of any kind.
This benefit of a guaranteed payout comes with a price: your premium may be several times
higher than the premium for a level term life insurance policy of the same amount. This is
because a portion of your premium goes to fund a tax-deferred cash value account. And of course, you are buying the life insurance for a longer time period: your whole life.
Whole life insurance policies are actually issued with a termination date built in. This date is usually on your 100th birthday. So, if you aren't dead by 100, the policy is terminated and you are given the cash value. The cash value on the termination date will be the face amount of the policy.
Whole life insurance policies have higher premiums than term life. They have “cash value” that is designed to build up against the inevitable claim, the death benefit. This benefits both the policy holder and the insurance company. The death benefit is guaranteed, and the insurance company gets 30% profit from every premium paid.
There are many ways to pay the premiums of a whole life insurance policy. You can pay the entire premium up front, known as a “single premium whole life insurance policy.” You can also choose to have a “paid up” policy, where you pay for a certain amount of time and then no further payments are required. Or you can simply opt to pay your yearly premium; the choice is yours. Whole life insurance policies generally guarantee that the cash value will increase no matter how the company is performing.
A whole life insurance can be best used in estate planning. It is one vehicle used by financial planners to protect assets for the next generation. So, if this is something that you may have to worry about, you should consult with a financial advisor to have a whole life insurance policy.