Whole Life Insurance

a combination of term insurance with an investment component. A whole life policy has two elements: the part of your premium that pays for the insurance coverage, the mortality charge and a reserve. The investment component of the policy that earns interest and as you age, the money that goes into the reserve will decrease while the money that pays for the mortality charge will increase., many companies credit the reserve with an annual dividend In addition to interest, depending on the investment performance and insurer's losses.

Whole life, unlike a term policy, have a cash surrender value (which is also referred to as a cash value). This is the amount that you would receive if you cashed in your policy. If you decide to relinquish your policy, your cash surrender value can be paid to you in cash or in the form of paid-up insurance. There are however, several problems with using whole life as a savings vehicle. One is that there can be little or no relation to policy's advertised rate of return as it may actually achieve (as disclosed in the set of hypothetical numbers referred to as the policy’s illustration). In reality the policy's returns will usually trail returns available from other investments like equity mutual funds and will fluctuate with the markets. Further, whole life is extremely expensive, and because of greater cost it may not allow you to purchase the amount of insurance coverage needed.

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