Whereas with term life insurance nothing is paid to the insured's ben-
eficiary (or beneficiaries) if the insured dies after the expiration of the policy's term, whole life insurance pays the death benefit to the bene-
ficiary (or beneficiaries) no matter when the insured dies (assuming that the policy is not surrendered or does not lapse).

In essence, a whole life policy is like having an annual renewable (decreasing) term policy attached to a savings account. The insurance component of the whole life policy becomes less and less as its cash value builds up until the cash value equals or exceeds the death bene-
fit of the policy (see DIAGRAM A below). When cash value equals the amount of the life insurance you are, in effect, 100% self-insured!

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As a result of whole life insurance policies building up cash value, there is a leveling of the policy's premium over the lifetime of the insured. The premiums paid in the early years of a whole life policy are in excess of the amount required to pay the current cost of the insurance protection. The balance (excess) of this money collected
is retained by the insurance company as a "reserve" to cover the pre-
mium deficiency that results in providing the same level of coverage to the insured during the later years of the policy when the initial "level" premium is no longer large enough to pay the actual cost of the life insurance. To have access to the cash value of your policy you must borrow against the policy and sacrifice part of your insur-
ance coverage or surrender your policy altogether.

An annual mortality charge is paid by the policyowner for the term life insurance component of the policy. In a whole life insurance poli-
cy this mortality charge changes each year to reflect, among other fac-
tors, the insured's increased age and the decreasing amount of life in-
surance protection provided as a result of the increasing cash value & decreasing life insurance component that combine to provide the poli-
cy's death benefit.

There are two principal types of TRADITIONAL WHOLE LIFE POLICIES; ordinary (also known as straight life) life policies and limited-pay life policies.

ORDINARY WHOLE LIFE POLICIES [see above DIAGRAM A] operate on the theory that the policy premiums will be paid until the insured reaches age 100 at which time the cash value of the policy will equal the death benefit. In the vast majority of cases premiums are not paid until age 100 because: (1) most people die before reach-
ing age 100, (2) policyowners may pay up the policy in a shorter pe-
riod, (3) surrender the policy and receive the cash value, (4) convert the policy to a smaller paid-up policy, (5) let the policy lapse, etc.

With LIMITED PAY WHOLE LIFE POLICIES the premium paying period is compressed. Therefore you pay larger premiums for the same amount of whole life insurance for a shorter time. The com-
pressed premium payment period is usually expressed in terms of the number of years the premium is to be paid (i.e., Life-Paid-Up in 10, 15, or 20 years; Ten-Pay Life, etc.) or the age at which premium pay-
ments cease (i.e., Life-Paid-Up at 65).

DIVIDENDS. Policies eligible for dividends are call "participating" policies. Without getting too complicated and launching into an expla-
nation of the technicalities involved in determining a mutual life insur-
ance company's surplus distribution, we can say that dividends are paid annually as the result of the insured's participation in the profit and loss elements of the policy class that he or she belongs.

The size of the dividend is based upon mortality factors, interest, and the loading factor (an assessment of expenses). Items calculated into the loading factor include, but are not limited to: commissions, rent, salaries, supplies, advertising, etc.

DIVIDEND OPTIONS. The insured or owner of the "participat-
ing" whole life policy may elect to use the dividend he or she receives in a number of ways. Among the dividend options available (either individually or in combination) to the policyowner are:

1). receiving the dividends in cash,

2). leaving the dividends with the company to earn interest,

3). reducing the policy premiums,

4). buying additional paid-up insurance,

5). using the dividends to "pay-up" the original policy,

6). purchasing a one-year term policy.

INTEREST SENSITIVE WHOLE LIFE POLICIES are level premium whole life policies that don't pay dividends. Instead, the cash value grows in an accumulation account from premium pay-
ments paid in and interest credited (the interest is paid on the reserve cash value in your policy's accumulation account). A life insurance charge is also deducted from this accumulation account to pay for mortality costs and the insurance company's other expenses.

The mortality charge is the cost per thousand dollars of life insurance you have. For cash value policies, like interest sensitive whole life insurance, this cost per thousand is applied against a figure that is the result of deducting the policy's death benefit from its reserve cash value in the accumulation account. For instance, if you have an inter-
est sensitive whole life policy with a $100,000 death benefit and a $25,000 cash value, your mortality cost would be based upon the $75,000 for which the insurance company is "at risk" if you die.

The interest rate is usually declared by the insurance company each year and reflects the current interest rate trends. These policies usu-
ally offer a guaranteed base interest rate meaning that no matter how low interest rates are you will never be paid less than the guaranteed interest rate on the reserve cash value in your policy's accumulation account.

UNIVERSAL WHOLE LIFE INSURANCE is an adjustable premium whole life policy. This type of life insurance policy offers flexible premiums with an adjustable death benefit coupled with an "unbundling" (specific definition) of the policy's mortality charges, investment component, and administrative charges.

With universal life the policy may be tailored so that the death benefit remains level or increases over time. The charge for providing this death benefit is referred to as the mortality charge. When your pre-
mium is paid to the insurance company for a universal life policy the following charges and distributions are made: (1) mortality charge (this amount increases each year because, according to the actuarial tables your chance of dying increases each year); (2) "load" (fees) for administrative and "other" expenses defined in the policy; and (3) the remaining premium is credited to the policy's cash value.

Universal life policies also contain "stop and go" provisions that al-
low you to discontinue and resume premium payments at any time (assuming that you have enough cash value in the policy to pay the recurring "load" (administrative and other fees) and mortality char-
ges. If your policy should not have the cash in it to pay these charges it will terminate, subject to a grace period that allows for reinstate-
ment.

VARIABLE LIFE INSURANCE is a variant of other whole life insurance policies. By choosing a variable life insurance policy in lieu of a more traditional one the policyowner may be able to realize a net investment return in excess of other more traditional whole life pro-
ducts. On the other hand, the policyowner gives up the guarantee of cash values and other elements of fixed benefit whole life insurance policies such as non forfeiture benefits and traditional policy loan provisions.

The premium the policyowner pays minus mortality, administrative, sales, and an assortment of other charges is invested in a "separate investment account" where a reserve (cash value) accumulates. Un-
like other types of whole life policies there is no guaranteed interest rate applied to the "separate investment account" and the policy death benefit increases or decreases based upon the performance of this ac-
count. The "separate investment account" can be invested in stocks, money market instruments, bonds, foreign securities, etc. The poli-
cyowner decides where (from among the investments presented by the company) to invest the "net" premium.

Variable life insurance is defined as a security. The advertisement and sale of variable life insurance policies is regulated by the U.S. Secu-
rities and Exchange Commission. People who sell variable life insur-
ance policies must have a life insurance license and hold a Series 6 or 7 securities license which requires additional testing and registration with the Securities and Exchange Commission.