Traditional Whole Life and Permanent Insurance
Whole life basics
Whole life provides lifelong coverage with a level premium, guaranteed cash value, and guaranteed death benefit. Premiums are higher than term because they fund lifetime protection and build cash value. The cash value grows tax-deferred and can be borrowed against or surrendered.
Varieties
- Straight (ordinary) life: level premium to age 100 (or maturity age); paid for life.
- Limited-pay: 20-pay, 10-pay, paid-up at 65 - same coverage, shorter payment period, higher premium.
- Single premium: one lump sum.
Universal life
UL separates the cost of insurance, expense charges, and cash value credited interest. Premiums are flexible; the death benefit can be Option A (level) or Option B (increasing). Guaranteed UL and indexed UL are common variations.
Traps
- Confusing limited-pay with reduced coverage - coverage stays level; only the payment period shortens.
- Assuming UL premiums are guaranteed - they are flexible, and the policy can lapse if cash value is exhausted.
- Confusing cash value with death benefit; the owner cannot receive both.
Rule of thumb
If a stem says "same death benefit, higher premium, shorter pay period," the answer is limited-pay whole life. If it says "flexible premium, adjustable benefit, interest credited," the answer is universal life.