Whole Life Insurance Explained
Whole Life Insurance: A form of life insurance offering protection for the whole of life, proceeds being payable at death. Premiums may be paid under a continuous premium arrangement or on a limited payment basis for virtually any desired period of years (e.g., 1, 10, 20, 30, or to ages 60 or 65). (See also: ordinary life.) This type of insurance has ownership provisions called nonforfeiture provisions. Whole Life Insurance has guarantees that other types of insurance do not have. The premium is guaranteed, the cash value is guaranteed, and the death benefit is guaranteed. These guarantees can sometimes provide leverage for other events in life.
Ordinary Life: Also referred to as straight life and whole life insurance. These three synonymous terms refer to the type of life insurance policy that continues during the whole of the insured's life, generally with level premiums payable each year until death or until age 100 when the policy endows if the insured is still living.
Mutual Company: A life insurance company that has no capital stock or stockholders. Rather, it is owned by its policyowners and managed by a board of directors chosen by the policyowners. Any earnings in addition to those necessary for the operation of the company and contingency reserves are returned to the policyowners in the form of policy dividends. (For contrast, see: stock company.)
Participating Insurance: An insurance policy, usually issued by mutual companies, that shares a portion of the surplus of the company with policyowners through dividends. The dividends represent the difference between the premiums charged and the actual costs (i.e., claims, expenses, earnings, etc.) experienced during the period for which the premiums were charged. (For contrast, see: nonparticipating life insurance.)
Stock Company: A company that is owned and controlled by stockholders rather than policyowners. (See also: mutual company.)
Nonparticipating Life Insurance: So called "non par" life insurance does not pay policy dividends. The policyowner is not in any way an owner and therefore is not entitled to share in any divisible surplus of the company. Any profits from the excess of the premium over the costs of insurance accrue to the nonpar company's stockholders which is fair since they would be the ones to absorb any losses. (For contrast, see: participating insurance.)
