2018 Best Whole Life Insurance Definition

A whole life insurance policy, like other types of permanent life insurance, is really a hybrid of insurance and investment.

The policy accumulates cash value as the years go by.

That cash value grows in a tax-protected manner, and you can even borrow the money in there tax-free (but not interest-free.)

Upon your death, whatever you borrowed (plus the interest) is taken out of the death benefit, and the rest is paid to your beneficiary.  (You get the cash value or the death benefit, not both.)


WHOLE LIFE INSURANCE – How does it Work?

A whole life insurance policy, each dollar of premiums is split into parts: One part covers the mortality charge, one part covers administrative expenses, and one part goes into the investment component of the policy – the accumulating fund.

Whole life policies offer level premiums (the same each year) for the rest of your life.

It’s also possible to have limited pay periods where, for example, you pay the premiums for a period of five or ten years, then no more premiums will be required after that.

As the owner of a “participating” whole life policy, you’ll be entitled to dividends from the insurance company.

“Participating” simply means that you may participate in the profits of the insurance company.

You can also purchase non-participating policies, but this is less common.

Whole Life Insurance as an Estate Planning Tool

Whole life insurance may be a good idea for wealthy families.

Because personal finance is personal, there are (almost) always exceptions to any rule.

It’s no different with whole life insurance.

For wealthy families, whole life insurance may be worthwhile as an estate planning tool because you can create an insurance trust that can pay estate taxes out of the policy’s proceeds and then pass the trust to heirs.

Estate planning is something to consider once you have kids and/or you have assets or life insurance policies to pass one.

Whole Life Insurance Premiums

A whole life policy can be designed with three premiums options.

  1. Basic premium only:
  2. Basic plus Term Option (or Enhancement): The combination of basic and term option premium is done to allow the person to buy a larger amount of coverage because it is a combination of whole life and term that reduces over time. The result is that premiums will have to be paid over a longer period of time.
  3. Basic plus Deposit Option: The additional premium, known as “Additional Deposit Option” (ADO) allows the policy to be either “paid up” sooner or achieves higher policy values. There is a maximum allowable ADO permitted so as to maintain the policy as a tax-exempt policy.

Whole Life policies have a cash value which is a combination of a guaranteed cash value and excess cash that will depend on the dividend scale.

A policy can be illustrated so that a specified number of premiums are paid, for example over 10 or 15 years.

After this time, the policy can be placed into “premium offset”, meaning no further premiums are paid by the policy owner, rather future premiums are paid from the policy.

PUA’s are surrendered along with policy dividends to pay the future premiums.

Structure of the Policy

Whole Life policies can have two internal insurance cost structures: either a life-pay or a 20-pay (meaning no cost of insurance is charged after 20 years). In comparison, the 20-pay option requires higher premiums in the early years and provides lower early cash values.

It is also possible to design Whole Life policies with either high early cash and death benefit values, or alternatively, high long-term cash and death benefit values. The crossover, as to when high long-term value policy exceed the high early value policy, is around year 20.

  • A higher early value policy will provide for strong balance sheet management, meaning by the policy’s 6th or 7th year, the cash value of the policy equals or exceeds the premiums paid.
  • The high long-term value policy is for those who wish to maximize the long-term values and early cash values are less important.

Finally, as mentioned in the whole life premium section above, a whole life policy can include some term coverage, known as “term option”.

This option allows for reduced premiums.

However, it also makes the future performance of the policy more sensitive to changes in the dividend scale and does not achieve growth in the death benefit until the term option amount has been eliminated.

Mintco Financial Whole Life Insurance Quotes Online

We help families connect the role of life insurance with their estate plan.

A properly structured life insurance plan – permanent policies such as whole life and universal life – provides the funding to the estate or holding company for various needs: meeting estate tax liabilities, funding obligations, providing funds for loss of income, enhancing the inter-generational transfer of wealth, and others. Life insurance provides a less costly and more tax-efficient option for meeting these needs than other strategies.

Contact our Team at

Phone 83-964-7100 or 716-565-1300



Get a free whole life insurance quote.