Whole life insurance

Whole life insurance is a form of permanent life insurance: as long as premiums are paid, coverage lasts for the insured's entire life rather than expiring after a set term. The policy combines a guaranteed death benefit with a savings element called cash value, and its premiums are fixed — level — from the day the policy is issued.

The cash value is what distinguishes whole life from term insurance. Part of each premium, after covering insurance costs and expenses, accumulates in the policy and grows at a guaranteed rate set by the insurer. The policyowner can borrow against the cash value, surrender the policy for it, or use nonforfeiture options if premiums stop. The policy is designed so the cash value equals the face amount at the policy's maturity age, at which point the policy endows and pays out to a living insured.

Because the insurer bears the investment risk and guarantees both the death benefit and cash value growth, whole life premiums are substantially higher than term premiums for the same face amount. Level premiums also mean young policyowners overpay relative to their mortality risk in early years and underpay in later years — the mechanism that makes lifetime level funding work.

Whole life insurance is tested across several exams. State life and health licensing exams cover its guarantees, cash value mechanics, loans, and nonforfeiture options in detail, while the Series 65 and Series 66 exams cover whole life among investment vehicle characteristics — contrasting its guaranteed, insurer-borne risk with variable products where the policyowner bears investment risk.