Whole life insurance, or whole of life assurance (in the Commonwealth), is a life insurance policy that remains in force for the insured’s whole life and requires (in most cases) premiums to be paid every year into the policy.

History

All life insurance was originally temporary (term) insurance. However, because term life insurance only pays a claim upon early premature death within the stated term, a number of term insurance policy holders became upset over the idea that they would most likely be paying premiums for 20 or 30 years and then wind up with nothing to show for it. Temporary insurance only pays out 2-3% of the time. This has become known as the “Lost Opportunity Cost” called term insurance.

In response to market pressures, actuaries produced an insurance policy with level contributions that would last a lifetime. These contracts would offer a “cash value” which was designed to be cash reserve that would build up against the known claim-the death benefit. These policies would also credit guaranteed interest to the cash value account. Upon maturity of the contract (usually at age 95 or 100), the cash value would equal the death benefit. By guaranteeing in the death benefit, the policy owner was assured that insurance coverage would be in force when the insured dies, allowing them to unlock and exploit other assets. Upon death of the insured, the cash value would be surrendered to the insurance company and the beneficiary would receive the death benefit. If, before their death, the insured wished to borrow the cash value and forfeit the death benefit, the cash value would be paid back with interest minus dividends paid, making it the lowest cost way to access one’s wealth.