Whole LifeInsurance:

Whole life Insurance plan lasts for your entire lifetime, i.e. it provides coverage for your whole life, provided you pay the required premiums in accordance with the conditions set forth in your Whole Life Insurance policy. In contrast with Term based life policies where the plan becomes ineffective if the insured survives (stay alive) the time period specified in the policy. The Whole Life Insurance is valid for your entire life and pays off the beneficiaries at your death - irrespective of when you die.

Whole life insurance also builds cash value. With Whole life insurance policy, a part of the premiums paid accumulates as a cash value. Usually the insurance company invests this cash value, which continues to grow tax deferred as long as the policy is in force. When your policy reaches certain cash value, you become entitled to claim loans on that, i.e. you can borrow against the cash value.

For whole life insurance policies, insurance companies usually will offer relatively low guaranteed rate of return to protect themselves. In reality though, their payment rate normally is in excess of the guarantee rate.

An important feature of whole life insurance is that although, the premiums are normally higher for whole life insurance, they stay constant i.e. they do not fluctuated with the passage of time – your age. Whole life insurance Premiums will remain fixed even if your health deteriorates. Term based life policies; on the other hand require latest health reviews for renewing term insurance, which can significantly increase the premium rates.

If you compare the premiums of terms and whole life insurance, you will notice that although initially (when you are young) you will pay higher premiums with whole/permanent life insurance policy, its premium amount stays the same. Whereas with term policy, premiums start at low rates but gradually, with your age, the premium will start to climb up.

Programs like making smaller premium payments throughout the life of the policy, larger payments over a shorter period, etc are available form different insurance companies and you should investigate thoroughly before making the decision to buy the policy that is right for you.

Insurance agents selling “Whole Life Insurance” would say, “Whole Life Insurance is like purchasing a house as compare to renting it”. With a life insurance plan, you gain equity through your premiums.

Note there are certain whole/permanent life insurance policies, which puts a cap on the age of the insured as the time of shis/her death. For example a policy might only give coverage up to the age of 90 – 100 years etc. There are lots of products in the market that mix and match lots of options and therefore can be sometimes very confusing for the buyer – sometimes even misleading.