UK Accounting Glossary
An insurance policy that will cover you for your whole life, no matter how long that happens to be. Because this is maximum coverage, it is also more expensive than term life insurance.
Whole life insurance, also known as ordinary, permanent, and straight life, is an insurance product that joins an investment factor with normal term insurance. Term insurance, unlike whole life insurance, only provides a death benefit for a specific period of time. The premium payment for whole life insurance pays into two separate components. Part of the charge for whole life insurance pays for the insurance coverage. Another part pays for the investment portion of the whole life insuinsurance policy. As a person ages, more money is allocated to the insurance coverage in a whole life insuinsurance policy. The investment component earns interest from the company administered investment portfolio and/or company profits. This part of whole life insurance increases in value over time. The amount of annual return is usually not based on a fixed rate for whole life insurance. Whole life insurance provides a cash or surrender value based on the value of the investment portion at any given time. This amount may be taken in cash if the whole life insuinsurance policy is cancelled, used as collateral for a policy loan, or used to buy additional death benefit coverage. Earnings and certain withdrawals and loans from a whole life insuinsurance policy may qualify for tax-favoured treatment.
She used the payments from her husbands whole life insurance policy to pay for the funeral expenses and the cost of moving to a smaller house.
A whole life insurance policy has a set premium amount that is paid yearly, making it easy to work into a budget.
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This glossary post was last updated: 5th February 2020.