Permanent Insurance - Whole Life
The purpose of permanent insurance is to provide a solution to a permanent problem. Insurance proceeds are intended to provide an enhanced estate for the family, pay the taxman, buy back shares from a partner’s estate, or supplemental retirement income. Permanent insurance can take the form of term to 100, whole life, or universal life.
Premiums and guaranteed CSV are based on minimum guaranteed rates of return. Excess actual returns are paid as dividends; bundled design with limited flexibility.
On the investment side, the investments backing the cash values on these products are largely more conservative fixed income securities such as high grade corporate and government bonds, with only a small proportion of the assets invested in riskier equities or real estate markets. While the cash values do provide an opportunity for some tax sheltered savings, these products are best suited for the passive, more conservative investor with little need, or interest, in managing investments and risk.
These products generally have fully guaranteed premiums and cash values based on a minimal guaranteed rate of return and other fairly conservative assumptions for things like mortality and expenses. Any excess gains, whether they are from additional investment earnings or gains on the other assumptions, are theoretically returned to the policyowner through dividends.
The demand for flexibility and control spawned the introduction of universal life which has taken over from the traditional whole life products as the mainstream product for most life insurance companies.