There are Many Types of Whole Life Insurance
We’re talking about Whole Life policies here … the kind that stays with you until you stop paying (or maybe a little after) or die. Most Whole Life policies have some sort of savings plan attached.
Standard Whole Life, sometimes called Ordinary Life, is the most common and easiest to understand of the Whole Life family. It combines a savings account with a death benefit to keep your payments and benefits from changing throughout your lifetime. In your younger years when your insurance risk is lower, some goes towards insurance and the rest goes into the savings portions to help pay the insurance part when you are older. This savings portion can sometimes be borrowed as Cash Value.
Universal or Adjustable Life is a modified Standard Whole Life that offers some flexibility. The savings account part of the policy may be invested in a money market type account that may earn a better return than the standard account (or may not). As the money has accumulated, you have the option of “adjusting” your payments to raise or lower your payments. Lowering, or even skipping payments sounds great, but keep in mind that it’s your own money that you’re using, and there may not be enough there for later years.
Variable Life policies combine the death benefit with a savings account that can be invested in stocks, bonds, and mutual funds. If your investments do well, your policy value may grow, but if your investments do poorly, your benefits may decrease. To their credit, many companies cap your losses so that the death benefit will not fall below a certain level.
Variable Universal Life combines the ability to adjust premiums and benefits of a Universal Life policy with the investment possibilities of a Variable Life policy.