What is a "whole life" policy?

What is a "whole life" policy?

A whole life insurance policy is really the traditional type of life insurance where you're insuring, as it says, your whole life. What it really means is that you want insurance forever and so what you're doing is when you're buying that life insurance there's really two components: you're paying for the life insurance itself; the actual risk that you might die this next year and you're also building up something that's called a 'cash value', and that cash value is really what's used to pay for your life insurance as it becomes much more expensive over the course of your life. So let me give an example, that you buy a $100,000 life insurance policy; a whole life policy. With most of these whole life policies at some age in the future, 100 ,99, you're actually going to get $100,000 whether you're alive or dead. So what you're doing is you're buying the cost of insurance, that $100,000, plus you're putting a little more money to build up that cash value. So maybe when you're 90, what you have is $90,000 worth of cash value and $10,000 worth of insurance only to get you that $100,000 death benefit. So the cost of your insurance is really only that extra $10,000 as you get older. That's really the process of a whole life policy is it has cash value that's going to grow over time.