What is whole life insurance?

Whole life insurance is defined as a permanent life insurance policy that remains in effect for the insured's entire lifetime, as long as the premiums are paid. One of the distinguishing features of whole life insurance is its cash value component, which accumulates over time. This cash value grows at a guaranteed rate and can be borrowed against or withdrawn by the policyholder.

In contrast, temporary coverage insurance policies, such as term life insurance, provide protection for a specified period and do not build cash value. Investment-focused policies, like variable life insurance, allow policyholders to invest cash value in various options that may fluctuate, but this is not characteristic of whole life insurance. Similarly, policies that concentrate on critical illness do not offer the lifetime coverage or cash value feature inherent to whole life insurance.

Thus, the correct understanding of whole life insurance encompasses its permanence, lifetime coverage, and cash value accumulation, making it a crucial component of long-term financial planning.