Types of Whole Life Insurance

Non-participating

The premium remains the same over the lifetime of the policy and the face amount is paid to the beneficiaries at the death of the insured. As long as the policy owner continues to make timely premium payments to the policy it will perform as originally illustrated. Premium payments should adhere to the payment schedule outlined in the policy contract. The cash values and death benefits of the policy are fully guaranteed, and will never change.

This is one of the most basic, easiest to understand forms of life insurance. Essentially, the insured is buying a term insurance policy that is guaranteed to last their lifetime.

Participating

Participating whole life insurance policies have the same premium, cash value, and death benefit guarantees as a non-participating whole life insurance policy. The difference is participating whole life insurance policies earn a dividend based on the profitability of the issuing life insurance carrier. You are effectively “participating” in the profitability of the company’s earnings.

The dividend is determined once the life insurance carrier has collected all premiums, paid out claims, and other miscellaneous costs associated with a policy. Dividends are typically paid annually. Premiums for a participating whole life insurance policy are typically higher than a non-participating whole life insurance policy.

Level Premium

Level premium whole life insurance is a type of policy that requires a premium payment every year for the lifetime of the policy. Premium payments can be made on a monthly, quarterly, semi-annual, or annual basis. Initially, premium payments far exceed the cost of insurance (like most life insurance policies). The excess is used to create a reserve in the cash value to offset the cost of insurance in later years when the premium is less than the actual cost of insurance.

Limited Pay

Limited pay whole life insurance is similar to a participating policy, but instead of paying annual premium payments for the life of the policy premium are due for a certain number of years, such as 10 years. Alternatively, a limited pay policy may be structured to be fully paid up at a certain age, such as 65. The policy will continue to stay in force for the life of the insured. A limited pay policy will usually cost more up front, but can cost less in the long run compared a lifetime pay whole life policy.

Single Premium

A single premium whole life policy is a form of a limited pay policy where the payment is a single, lump sum premium. Like a limited pay policy the coverage remains in force for the life of the insured.

Interest Sensitive

Interest sensitive whole life is a mixture of traditional whole life insurance and universal life insurance. Instead of using dividends to guarantee the cash surrender value, interest is credited and varies with market conditions. The death benefit remains constant for life, but the premium payment can vary.