Presentation

There are four broad types of permanent life insurance. The first of these is whole life insurance.

Whole life insurance is life insurance that remains in force for the policyholder’s whole life, as long as he or she remains current paying premiums. In exchange for these fixed premiums, the insurance company promises to pay a set benefit when the policyholder dies.

Unlike term life insurance policies, whole life insurance policies build up cash value—effectively a cash reserve—that pays a modest rate of return. The growth on this cash value is tax deferred.

With whole life insurance, withdrawals of earnings are fully taxable at ordinary income tax rates.  If you are under age 59½ when you make the withdrawal, you may be subject to surrender charges and assessed a 10% federal income tax penalty. Also, withdrawals will reduce the benefits and value of the contract.