What is whole life insurance?
Whole life insurance is a variety of life insurance which guarantees a death benefit. This is in contrast to term life insurance, which only issues a death benefit if the insured dies during a finite term of coverage.
Whole life insurance may not actually last for the remainder of the insured's life, though. It may, rather, "mature," which is to say that the policy pays its death benefit and terminates while the insured is still alive. The timing of the policy's maturation depends on the growth of its cash value:
Whole life insurance policies build equity called "cash value." Cash value grows through the premiums that the policyholder pays and also through interest, compounded on itself. Because whole life insurance's premiums and interest rate are fixed and guaranteed, the growth rate of the cash value is guaranteed.
Whole life insurance policies are designed so that the cash value will grow to equal the policy's death benefit when the insured reaches a certain age (usually 100, in some cases 125). When the cash value is equal to the death benefit, the policy matures or, in another word, "endows." (No, you don't get to keep both the equity and the death benefit.)
Whole life insurance makes two significant guarantees: it guarantees the growth rate of its cash value, and it guarantees a death benefit. Those promises are pretty expensive to make (especially guaranteeing the cash value's interest rate, which may be locked in for the better part of a century). As a consequence, whole life insurance is significantly more expensive than either term life insurance or universal life insurance.
