Whole Life Insurance

form of life insurance policy that offers protection in case the insured dies and also builds up cash value. The policy stays in force for the lifetime of the insured, unless the policy is canceled or lapses. The policyholder usually pays a level premium for whole life, which does not rise as the person grows older (as in the case of term insurance). The earnings on the cash value in the policy accumulate tax-deferred, and can be borrowed against in the form of a policy loan. The death benefit is reduced by the amount of the loan, plus interest, if the loan is not repaid.

Traditionally, life insurance companies invest insurance premiums conservatively in bonds, stocks, and real estate in order to generate increases in cash value for policyholders. Policyholders have no input into the investment decision-making process in a whole life insurance policy. Other forms of cash value policies, such as universal life insurance and variable life insurance give policyholders more options, such as stock, bond, and money market accounts, to choose from in investing their premiums. Whole life insurance is also known as ordinary life, permanent life, or straight life insurance.