Permanent Insurance - Traditional Whole Life

Whole life insurance is a type of permanent life insurance that covers the insured's lifetime, maturing at age 100 when the cash value equals the face amount. Key characteristics include:

Lifetime Coverage: Remains in force for the insured’s entire life, maturing when cash value equals face amount at age 100.
Level Premium: Premiums are constant, with higher early payments building a reserve that offsets costs in later years.
Level Face Amount: Fixed death benefit throughout the policy’s duration, providing predictable coverage.
Cash Value Accumulation: Builds living benefit accessible after 3 years through loans or surrendering the policy.
Non-Convertible/Non-Renewable: Cannot be converted or renewed, as it is designed for long-term coverage.
Net Amount at Risk: Decreases over time as cash value grows, lowering insurer risk.

Types:

Straight Life: Continuous premiums until age 100 or insured's death, lower annual but higher total premium outlay; ideal for steady, affordable payments.
Limited Payment: Higher annual premium paid over a shorter term (e.g., 20 years), with life coverage continuing after payments stop; suitable for those wanting to pay off premiums early.
Single Premium: One lump-sum payment at purchase, offering immediate cash value and limiting future premium payments; best for those with available capital seeking immediate growth.

Comparison Chart: Whole Life Insurance Overview

Aspect	Details	Use Case/Features
Lifetime Coverage	- Provides coverage for the insured’s entire life, as long as premiums are paid.	- Policy matures (endows) at age 100; cash value equals the face amount at maturity.
		- Offers guaranteed lifetime protection.
Level Premium	- Premiums remain constant throughout the policy’s duration.	- Builds a reserve at younger ages to offset higher costs in later years.
		- Predictable, stable premium structure.
Level Face Amount	- Death benefit remains fixed for the policy’s duration.	- Ensures predictable and stable coverage for the insured.
		- Cash value accumulation reduces the insurer’s net risk over time.
Cash Value Accumulation	- Builds guaranteed cash value over time, accessible after ~3 years.	- Policyowners can borrow against cash value or surrender the policy for its cash value.
		- Provides a living benefit alongside the death benefit.
Non-Convertible/Non-Renewable	- Cannot be converted to another policy or renewed.	- Designed for long-term, lifetime coverage with no conversion needs.
Net Amount at Risk	- The insurer’s risk decreases over time as cash value grows.	- Ensures the death benefit is covered as the policy matures.

Types of Whole Life Insurance

Type	Payment Structure	Features	Ideal For
1. Straight Life (Continuous Premium)	- Premiums are paid continuously until age 100 or the insured’s death.	- Lowest annual premium, highest total premium outlay due to extended payment duration.	- Individuals seeking affordable, consistent lifetime payments.
2. Limited Payment	- Premiums are paid over a shorter, fixed period (e.g., 20 years) or to a specific age (e.g., Paid up at 65).	- Higher annual premium but lower total premium outlay.	- Those who prefer to complete payments early or have higher income during the payment period.
		- Lifetime coverage with no premiums after the designated payment period.
3. Single Premium	- A one-time, lump-sum payment at policy purchase.	- Immediate cash value growth with no future premiums.	- Individuals with available funds for a single payment option.
		- Lowest total premium outlay; requires significant upfront capital.

Endowment Life Insurance: An endowment policy combines life insurance protection with a savings component, offering both a death benefit and cash value. They were popular before the Tax Reform Act of 1984, which diminished their appeal due to tax changes.

Key Features:

Coverage Period: Provides life insurance for a specific term or up to a certain age, maturing earlier than whole life policies, often for significant milestones (e.g., college, retirement).
Death Benefit: Pays the face amount to beneficiaries if the insured dies during the term.
Maturity/Endowment: Matures when cash value equals the face amount, providing a lump-sum payout if the insured survives.
Premium and Cash Value: Higher premiums than whole life policies, with faster cash value accumulation due to shorter maturity.
Purpose: Ideal for those seeking a savings vehicle and life insurance protection, often used for major life events.
Impact of Tax Reform Act of 1984: Reduced tax advantages, leading to a decrease in endowment policies' popularity.

Comparison Chart: Endowment Life Insurance

Aspect	Details	Use Case/Features
Coverage Period	- Provides coverage for a specific term or up to a certain age.	- Matures earlier than whole life policies, often linked to life milestones like college funding or retirement.
		- Combines term-like coverage with savings benefits.
Death Benefit	- Pays the face amount to the beneficiary if the insured dies during the term.	- Offers financial protection to dependents during the policy term.
Maturity/Endowment	- The policy matures when the cash value equals the face amount.	- Provides a lump-sum payout to the insured if still living at maturity.
Premium and Cash Value	- Premiums are higher compared to whole life policies due to the shorter maturity period.	- Cash value accumulates rapidly to reach maturity sooner.
		- Acts as a savings tool for specified financial goals.
Purpose	- Offers a dual benefit of life insurance protection and a savings mechanism.	- Commonly used for funding education, weddings, or retirement.
Impact of the Tax Reform Act of 1984	- The Act reduced the tax advantages previously available to endowment policies.	- Endowment policies became less attractive and are now less commonly issued.