Premiums: Continuous, Limited-Pay, Single Premium
Continuous: Level premiums are paid through age 100 or until the insured dies.
Limited-Payment: Premium payments are level and cease after a certain number of years, i.e. 20 or 30 years.ย Though premium payments are higher, cash value accumulates more quickly.
Single Payment Whole Life: Premium payment is made as a lump sum at the beginning of the policy.
Savings Accumulation: Scheduled, Bundled, Fixed Rate of Interest
Cash value accumulation is bundled with death protection and differentiation is not made explicit.ย Cash value is invested by the insurance company and gains interest at a fixed rate.ย Cash values are known in advance because premium payments and interest credited is on a fixed schedule.
Duration: Permanent or until Lapse
Policy is permanent, lasting the duration of the policyholder’s life or until the policy lapses due to surrender or lack of premium payment.
Death Benefit: Fixed face value of policy
Beneficiaries are paid the face value of the policy upon death of the policy holder.ย This death benefit consists of the entire cash value with death protection accounting for the difference between the face value of the policy and the available cash balance.ย The death benefit will not exceed the face value of the policy.ย If the policyholder lives to age 100, they receive the face value of the policy.
Risk: Insurer Insolvency, Participating Dividend, Inflationary Risk
The insurance company bears the risk as the policy holder is guaranteed premiums and a face value at the beginning of the policy.ย Participating policies allows the insurance company to impart some risk to policyholders, but this risk is minimal.ย The risk borne by the policyholders of participating policies is limited to the amount of dividends, though whole life dividends are fairly consistent.ย Further explanation can be found in the Participating vs. Non-Participating Policies article.ย Interest rates for cash values are low and may not keep pace with inflation.ย Insurer insolvency risk is always present.
Reasons for Policy Lapse: Missed Premium Payment, Surrender
The policy can lapse if the policyholder fails to make premium payments or if a policy loans exceed the cash value of the policy.
Remarks: Limited flexibility
Flexibility exists in the ability to take out policy loans against the cash value.ย Due to most aspects being fixed, flexibility is mostly limited to loans.
