Permanent life insurance policy, often called whole, ordinary, straight, or continuous premium life insurance, provides protection for the entire life of an insured up to age 100 (or to age 90 in some contracts), at which time all life insurance contracts mature or terminate.The basic form of whole life is based on the assumption that an insured will pay premiums until death. The level premium which he pays is determined by the attained age of the insured at the time of policy issue and based upon his life expectancy.Like term insurance, the policy proceeds are payable only at death, unless, of course, the insured lives to age 100.
Since it is a permanent contract, however, the beneficiary is assured of collecting the face amount of the policy sooner or later.In order to meet increasing mortality costs, particularly at advanced ages, reserves are established from the excess of premiums paid over those needed to pay current death claims. These reserves are the bases for cash or loan values of whole life insurance.
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Cash ValueThe cash value increases yearly can be borrowed against and belong to the insured if he chooses to surrender his policy.Thus, cash values represent a form of forced savings which the insured can borrow against or take if the policy is surrendered. The money obtained in the above ways can be used as the insured wishes (i.e., new car, retirement, etc.
).The loan provision is valuable because of its low-interest rate (5 percent in older policies, 6 percent in some newer policies) and because the insured is automatically entitled to a loan equal to the cash value.If the insured decides to surrender his policy or cannot continue to make premium payments, he can select one of several nonforfeiture provisions rather than take the cash value in a lump sum.
2These options permit the insured either to keep the full face value of his insurance in force for a certain length of time or to continue whole-life coverage with a reduced face amount without paying any further premiums.If the cash value is to be used for retirement purposes, it has an advantage over funds accumulated in other fashions in that it may be used to purchase an annuity at net rather than gross rates (i.e., loadings for the expense and unexpected contingency factors are eliminated from the gross rate to arrive at the net rate. Net rates consider only mortality and interest assumptions).Premiums Payments In Permanent Life Insurance PolicyPremiums may be paid for less than the lifetime of the insured on a whole-life insurance policy by the purchase of either a single premium contract or a limited-pay contract.The single premium payment contract has all the features of the whole-life insurance policy except that only one premium is required to make the face value payable upon death.The cash value of such a contract is significantly higher, to begin with, but increases less rapidly than either a straight or a limited-payment contract.Under a limited-payment contract, the insured pays premiums only for a specified period of time of permanent life insurance policy.