Whole life insurance

Whole life insurance guarantees a benefit on the insured's death, whenever it occurs. Unlike term cover, the payout is therefore certain: only its timing is uncertain. The insurer must accordingly build up, over the premiums, a reserve that will reach the benefit at the terminal age of the mortality table, and the policy costs much more per unit of cover. In France, the product serves mainly for estate planning: it builds, for a named beneficiary, a sum outside the estate and, if premiums are paid before age 70, under the tax framework of article 990 I; it can also give heirs the liquidity needed to pay inheritance tax without selling an asset. Premiums may be single, limited-pay or payable for life. In the United States, whole life means a richer product: permanent insurance whose cash value grows at a guaranteed rate, sometimes enhanced by dividends when the policy is participating, and against which the insured can borrow. This model gave rise to the secondary market for policies, where investors buy contracts from older insureds. For the insurer, the main risk is not mortality but interest rates: an open-ended commitment, guaranteed at inception, lasts several decades.