What is Whole Life or WL?
Whole Life insurance covers you for as long as your live if your premiums are paid. You generally pay the same premium for as long as you live. This premium will be declared at your formal life insurance policy first page, such as " pay up to age 98", "whole life pay", "pay to remainder of your life".
When you first take out the policy, premium can be several times higher than you would eventually pay if you were to keep renewing a term policy until your later years.
Some whole life policies such as custom whole life let you pay premium for a shorter period such as 20 years, or until age 65. Premium for those policies are higher since the premium payments are made during a shorter period.
Whole Life policy can build up cash value after 2nd or 3rd policy year, the policy owner can require a loan against the cash value in the later year, but the loan interest rate is much higher normally 5%-6%, and the loan have to pay back otherwise the policy will lapse because of no enough cash value to maintain the policy in force.
Whole Life have dividend option, there isn't any guaranteed for the dividend payment and exact amount for any policy year. You can use the dividend to purchase some pay up insurance amount or pay the premium or cash back.
According to IRC code 1035 Exchanged, Whole Life policy can exchange to other life insurance policy such as Indexed UL , Global Indexed UL, GDB-Ul, or VUL without any tax issue if you don't satisfy the any of the Whole Life feature .
Features of Whole Life
- Premiums generally are level and payable for life -- Since premiums are level, the younger the client is when they purchase a whole life policy, the less expensive the annual premiums will be.
- Dividends -- Whole life insurance policies can earn dividends. Dividends result when the actual life insurance costs turn out to be less than assumed in setting the premiums. When this happens, a carrier may return a portion of the life insurance premium as a dividend. Dividends are not guaranteed, since the actual costs are unknown in advance.
- Guaranteed Cash Values -- Unlike term life insurance, which does not accumulate any cash values, some of the money paid into a whole life policy accumulates as guaranteed cash values. If the client chose to surrender the policy, these guaranteed cash values would be available to them. Or, as long as the policy is in force, they can borrow against them as a policy loan at the current policy loan interest rate.