Both permanent and term life insurance provide a death benefit. However, unlike term insurance, permanent whole life insurance can also provide what are referred to as "living benefits." Living benefits provide a financial resource for you to use and enjoy during your lifetime. For example, with whole life insurance, it's possible to take policy loans, or use the policy for retirement income, cash withdrawals, and more.
Living benefits are provided by the accumulation of cash value and the death benefit inside the whole life policy.
These living benefits are present in addition to the tax-free legacy of the death benefit that will be left to your beneficiaries. Unfortunately, it is the death benefit, not the financial power of the living benefits that people tend to focus on when they think of life insurance.
To take advantage of using whole life as a financial tool requires that the insurance policy be specifically designed for use as a financial tool. You cannot simply purchase a whole life policy off the shelf, dust it off, and expect it to work well as a financial vehicle.
This is one of the reasons whole life insurance often gets poor review by the media and financial advisors. Financial experts find a whole life policy that was never designed to work as a financial vehicle and point out its flaws, usually by comparing it against the anticipated performance of their investment product(s).
Participating whole life insurance can function as a simple and powerful tool by operating as a secure savings plan, which becomes part of your lifetime financial strategy.
When you use a custom-designed whole life insurance policy as part of a financial strategy, you are shifting the location of your money. You are moving your money out of a volatile investment vehicle (such as mutual funds in the stock market) as the depository for all your money, and placing it in a more stable location. One which eliminates the risk of capital loss and takes advantage of the power of compound interest.
The security of participating whole life insurance can form the cornerstone of your financial strategy. The foundation of this strategy is built on predictable results, financial control, and lifetime access to your cash without penalty.
It can be used as a stand-alone strategy or in combination with other investment vehicles and approaches. It's a financial staple of the wealthy and is currently standard business practice for executives, corporations, and banks.