2 Benefits of Whole Life Insurance

There are 2 important benefits of whole life insurance. Whole life insurance stays in effect until age 100 and is widely known as permanent protection. It provides a policy owner with a death benefit and a life benefit through its accumulation of cash value.  A whole life insurance policy owner typically receives a policy dividend, which represents the unearned portion of premium paid to the policy owner. 

Cash Value Accumulation

A permanent life insurance policy generates excess cash through interest earnings. The earnings are credited to the policy.  The earnings accumulate and the accumulation is important because it allows the policy owner a way to build value in the policy.  Over time, as premiums are paid, the cash value will grow until at age 100. At a certain point in time, the policy’s cash value is equal to the face value of the policy.  If the insured has not died, the policy owner receives the face amount as an endowment.

Policy Dividends to Lower Premiums

Each year the insurance company sets the rates for its policies.  Although a whole life insurance policy’s rates are fixed when the contract is signed, favorable economic conditions may mean that more money is being paid as a premium than what is needed.  The insurance company declares a policy dividend, which essentially is a refund of premiums paid.  The policy dividend can be used to lower future premiums, or increase the cash value of the policy.