Types of Whole Life Insurance
There are traditionally six types of whole life insurance-non participating, participating, indeterminate premium, economic, limited pay and single premium. A newer type of whole life insurance, interest sensitive whole life, is also available. It's important to remember that not all jurisdictions may allow all types of whole life insurance and not all insurance companies will offer all the types of whole life insurance.
Non-participating whole life insurance: Everything relating to the policy-the death benefits, premiums and cash surrender values-are determined at the time the policy is issued and remain in effect for the life of the contract and can not be changed after the policy has been issued. The insurance company assumes all of the risk of the future against the risk assessment estimates. If the insurance company underestimates the future claims, they make up the difference but if the estimates are high, the insurance company retains the difference.
Participating whole life insurance: This type of whole life insurance is different from non-participating in the way that if there are profits on the policy (when the risk assessment from the actuary is too high) are shared with the policy holder and the insurance company. The higher the success of the insurance company the greater the dividend.
Indeterminate premium whole life insurance: This type of policy is similar to a non-participating policy except that the premium (payment the insured person makes) can change from year to year. There is a maximum premium that is guaranteed in the policy and the premium that the insured person pays will not exceed the maximum premium that is guaranteed in the policy.
Economic whole life insurance: This type of whole life insurance is a blend of participating whole life insurance and term life insurance. A portion of the surplus premium are used to purchase more term insurance. Usually, this generates a higher death benefit, however in some policy years the surplus may be lower than the projections and the death benefit will be less in those years.
Limited pay whole life insurance: This type of whole life insurance is similar to a participating policy however premiums are only due for a set number of years, for example, 20 years, instead of for life. This type if policy may also be set to pay out at a certain age, such as 65 or 80. This type of whole life insurance costs more upfront.
Single premium whole life insurance: This type of whole life insurance is a form of limited pay that only requires a large payment up front.
Interest sensitive whole life insurance: This type of whole life insurance policy is fairly new to the market and is a blend of traditional whole life and universal life. The interest on the policy's cash value changes with the current market conditions instead of using the dividends to enhance the guaranteed cash value accumulation. The death benefit remains constant for your whole life just like whole life insurance however the premium payment can vary but not in excess of the maximum premium that is guaranteed in the policy.