What is whole life insurance?
Whole life insurance is permanent life insurance with cash value "living benefits."
Like all life insurance, whole life policies protect your family in the worst of times. The death benefit from your policy can replace lost income, maintain mortgage payments, or fund college expenses. Whole life is a type of permanent life insurance because the policy stays in effect your entire life.
Whole life insurance has the added benefit of a savings component that grows cash value tax-free. Many policies have a guaranteed minimum rate of return for the cash value portion of the policy. This is often referred to as a "living benefit" because it is intended to be accessed during your lifetime.
Learn more about living benefits associated with life insurance.
What if I no longer need my
whole life policy?
If for whatever reason you no longer need your whole life insurance, there are usually a few options available to you. It often depends on your insurance company and the specific terms of your coverage.
Cash surrender: You can request the cash surrender value be paid to you. This is the cash value of the policy less the surrender charge. This terminates your coverage and will result in income taxes on any investment gains you received.
Reduce coverage based on what you've paid: Your life insurance company may consider what you've already paid towards your policy, calculate the amount of death benefit that sum would permanently provide, and give you a policy of that amount.
Extended-term life insurance: Your life insurance company may consider what you've already paid towards your policy and convert it to a term life policy for the same death benefit amount.
1035 exchange: You may be able to exchange your whole life policy for a different life insurance policy or for an annuity.