Life insurance is a complex insurance product because it also has an investment aspect.
The policy works by building cash value through a portion of the premium not needed to pay for the cost of the death benefit. The surplus premium amount builds with interest within the policy, and as the cash value increases you can borrow against it or, for a penalty, surrender the policy early.
Many people buy life insurance, particularly this type, for use as a college fund or as a financial safety net that can be borrowed against in an emergency. Many life insurance agents refer to whole life policies as savings or retirement plans. While these functions are legitimate, you should always look at your entire financial situation and weigh all of your investment options. That way you can determine the best insurance policy for your goals, and make the best use of your money.
There are a couple of insurance policies that fall within the whole life insurance category: Non-participating whole life insurance: A permanent policy with no investment return; lower level life insurance premiums than whole life insurance policies that include an investment component
Participating whole life policies: These policies can pay dividends to you directly, or they can be used to lower your premium payment or to increase the face amount of your coverage.