Whole life insurance is a form of life insurance in which the policy stays in force for the lifetime of the insured person.  The policyholder pays a premium that is guaranteed for life to be paid to your beneficiaries.  The premium is unlikely to change over the lifetime of the insured and the cash value growth should be guaranteed.

In addition to providing protection for death, a whole life insurance policy also builds up cash value.  The cash value feature is guaranteed to increase in value and is called “accumulated cash value” which allows you to make withdrawals after a certain number of years and use the proceeds for any purpose.  The policy can be used as part of a financial or retirement plan that supplements income.  Withdrawals or borrowings against the accumulated cash value can help you with being tax efficient.

There are advantages and disadvantages to withdrawals.  The accumulated cash value can be used to pay your premiums on the policy; as collateral for a mortgage; tuition; down payment on a house; (unexpected) medical expenses; and other personal expenses.  Waiting for the cash value to accumulate over several years before making a withdrawal allows the withdrawals to be tax free.  Loans against a whole life insurance policy will reduce the cash surrender value and death benefit and may also reduce the amount of dividends paid.  If loans equal or exceed the cash value, the policy will terminate if additional cash payments are not made. Repayment of loans from a policy’s value can trigger a significant tax liability if there is no cash remaining in the policy to pay the tax.