Whole life insurance policies feature a “cash value” savings account. A portion of your premium is invested in the account, which typically grows slowly on a tax-deferred basis. You can borrow against the cash value, use it to buy more coverage or surrender the policy for the cash. (The death benefit is reduced if you don’t repay a loan, and it disappears if you surrender the policy.)
Whole life insurance policies guarantee a minimum growth rate on the cash value.
Whole life insurance policies guarantee a minimum growth rate on the cash value. Some policies can perform even better if they earn dividends, which are portions of the insurer’s financial surplus. Dividends generally aren’t guaranteed, but they’re worth taking into account when you compare policies.
Whole Life insurance policies may offer an index on the insurance companies performance or an index of the S & P 500 or even both. You would pick out the percentage that you would like to participate in. There is usually a guaranteed rate of return ( typically 1% if the market is down) because it is an index , you are not fully in the stock market.
Life insurance companies provide illustrations of how each policy’s cash value could perform. Always ask which parts of the illustration are guaranteed. For example, an insurer may give cash value projections based on the payment of dividends, which aren’t guaranteed.