Jones took out a whole life insurance policy because he wanted both the straight-up life insurance as well as an investment feature that would enable him to accumulate cash value.
whole life insurance
Definition
Life insurance coverage that runs for the insured’s natural life. Whole life insurance provides both term life insurance and a savings plan (i.e., accumulation of “cash value” or “surrender value”) that allows for the insured, at any time after an initial period but before the insured’s death, to surrender the policy for that value or sometimes to borrow against it without surrendering the policy. Also termed ordinary life insurance; straight life insurance; permanent insurance.
Definition from Nolo’s Plain-English Law Dictionary
Life insurance that provides coverage for the entire life of the policyholder, who pays the same fixed premium throughout his or her life. The policy builds up cash reserves that may be paid out to the policyholder when he or she surrenders or partially surrenders the policy or uses the cash reserves to fund low-interest loans. The annual increase in the cash value of the policy is not taxed. If the policyholder surrenders the policy, a portion of the payment is not taxable. Also called straight life insurance or ordinary life insurance.
Definition provided by Nolo’s Plain-English Law Dictionary.
August 19, 2010, 5:26 pm
“Whole life insurance covers an insured for life, during which the insured pays fixed premiums, accumulates savings from an invested portion of the premiums, and receives a guaranteed benefit upon death, to be paid to a named beneficiary. Universal life insurance is term life insurance in which the premiums are paid from the insured's earnings from a money-market fund. Variable life insurance is life insurance in which the premiums are invested in securities and whose death benefits thus depend on the securities' performance, though there is a minimum guaranteed death benefit. Because whole life insurance, universal life insurance, and variable life insurance include a savings component in addition to the their insurance component, they almost always have higher premiums than term life insurance, and they accumulate value that may be removed from the policy either via a loan from the insurance company secured by the policy or a cash withdrawal that reduces the savings component of the policy.” Curcio v. Commissioner of Internal Revenue, T.C. Memo. 2010-115, WL 2134321 (U.S. Tax. Ct., May 27, 2010) (Cohen, J.).
