Whole Life Insurance

Unlike term insurance, which pays out only if death occurs within a set period, whole life insurance is designed to pay out whenever the insured person dies. Because a payout is almost certain, premiums are much higher than for term insurance offering the same amount of cover.

In many whole life policies, particularly in the United States, part of each premium goes into a cash value account that grows over time, often on a tax-deferred basis. Policyholders may be able to borrow against this cash value or surrender the policy for it, although surrendering early often returns less than was paid in. Some policies, called participating policies, also pay dividends based on the insurer's performance.

For example, a person might buy whole life insurance to leave money to their family regardless of when they die, or to provide funds to pay inheritance taxes on their estate.

Whole life insurance can be useful for estate planning and lifelong needs. Critics note that its high costs and fees mean many people would be better off buying cheaper term insurance and investing the difference elsewhere. The features and tax treatment of whole life products vary considerably between countries.