Whole

Lesson

Whole life insurance is a type of permanent life insurance that provides coverage for the insured's entire life as long as premiums are paid. It combines a death benefit with a cash value component, which can be used for various purposes, such as paying premiums, taking out loans, or supplementing retirement income. Whole life insurance policies have fixed premiums and guaranteed cash values, making them a more stable and predictable investment option than other life insurance types.

Practice Question #1

Which of the following is a characteristic of whole life insurance?

A) Flexible premiums

B) Coverage for a specified term

C) Guaranteed cash value

D) No cash value component

Select an option above to see an explanation here.

A) Flexible premiums are characteristic of universal life insurance. B) Coverage for a specified term is a characteristic of term life insurance. C) Guaranteed cash value is a characteristic of whole life insurance. D) No cash value component is a characteristic of term life insurance.

Terms

Whole life insurance:: A type of permanent life insurance that provides coverage for the insured's entire life as long as premiums are paid.
Death benefit:: The amount paid to the beneficiary upon the insured's death.
Cash value:: The savings component of a whole life insurance policy that accumulates over time.
Fixed premiums:: Premiums that remain the same throughout the policy's life.
Guaranteed cash value:: The minimum cash value a policyholder is guaranteed to receive.
Dividends:: Profits paid to policyholders by participating in whole life insurance policies.
Non-participating policy:: A whole life insurance policy that does not pay dividends.
Participating policy:: A whole life insurance policy that pays dividends.
Surrender value:: The cash value available to the policyholder if they cancel the policy.

Practice Question #2

What is the primary difference between participating and non-participating whole life insurance policies?

A) Participating policies have flexible premiums, while non-participating policies have fixed premiums.

B) Participating policies pay dividends, while non-participating policies do not.

C) Non-participating policies have a cash value component, while participating policies do not.

D) Non-participating policies have an adjustable death benefit, while participating policies have a fixed death benefit.

Select an option above to see an explanation here.

A) Both participating and non-participating policies have fixed premiums. B) Participating policies pay dividends, while non-participating policies do not. C) Both participating and non-participating policies have a cash value component. D) Both participating and non-participating policies have a fixed death benefit.

Do Not Confuse With

Term life insurance:: Provides coverage for a specified term, typically 10, 20, or 30 years, and does not have a cash value component.
Universal life insurance:: A type of permanent life insurance with flexible premiums and an adjustable death benefit.
Variable life insurance:: A type of permanent life insurance with an investment component, where the cash value is invested in various investment options.

Practice Question #3

Which of the following can be done with the cash value of a whole life insurance policy?

A) Withdraw the cash value without any tax implications

B) Take out a policy loan

C) Transfer the cash value to another investment vehicle

D) Use the cash value to purchase additional term life insurance

Select an option above to see an explanation here.

A) Withdrawals from the cash value may be subject to taxes. B) Policyholders can take out a policy loan against the cash value of their whole life insurance policy. C) The cash value cannot be transferred to another investment vehicle. D) The cash value can be used to purchase additional whole life insurance, not term life insurance.

Historical Example

In the early 20th century, whole life insurance policies were often used for forced savings, providing a stable and predictable investment option for individuals without access to other investment vehicles. This helped many families build wealth and achieve financial security during economic uncertainty.

Practice Question #4

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Example Series 65 Example Practice Question

Real-World Example

A young couple purchases a whole life insurance policy to provide financial protection for their family in the event of their death. Over time, the policy's cash value grows, and they use it to help fund their children's college education and supplement their retirement income.