6. Understanding whole life insurance Aa Aa Suppose you are a life insurance broker with a client who is interested in buying a whole life insurance policy. You explain to him the three major types of whole life insurance: continuous premium, also known as limited payment, and single premium. Your client is a 33-year-old man who does not have children and would like to provide a death benefit for his wife. He currently has considerable cash resources, so he is primarily interested in using the policy as a tax-sheltered investment vehicle. whole life policy Based on this information alone, you recommend that he purchase a Your client takes your advice but wants to understand more about the different features of his policy: specifically the relationship between the premiums he pays, the cash value of his plan, and the death benefits his beneficiaries would receive in the event of his passing. To help illustrate, you show him the following graph: THOUSANDS OF DOLLARS 200 160 120 Death Protection 80 Cash Value 40 0 80 30 50 60 70 90 100 AGE OF INSURED The graph projects the cash value and death protection for a $200,000 whole life policy. If the client were to die at in death protection age 90, his beneficiaries would receive roughly the cash value. If instead, at age 70, the client were to cancel or borrow against the policy, he would be able to withdraw up to associated with whole life insurance. because of the 40 6. Understanding whole life insurance Aa Aa Suppose you are a life insurance broker with a client who is interested in buying a whole life insurance policy. You explain to him the three major types of whole life insurance: continuous premium, also known as limited payment, and single premium. Your client is a 33-year-old man who does not have children and would like to provide a death benefit for his wife. He currently has considerable cash resources, so he is primarily interested in using the policy as a tax-sheltered investment vehicle. whole life policy Based on this information alone, you recommend that he purchase a Your client takes your advice but wants to understand more about the different features of his policy: specifically the relationship between the premiums he pays, the cash value of his plan, and the death benefits his beneficiaries would receive in the event of his passing. To help illustrate, you show him the following graph: THOUSANDS OF DOLLARS 200 160 120 Death Protection 80 Cash Value 40 0 80 30 50 60 70 90 100 AGE OF INSURED The graph projects the cash value and death protection for a $200,000 whole life policy. If the client were to die at in death protection age 90, his beneficiaries would receive roughly the cash value. If instead, at age 70, the client were to cancel or borrow against the policy, he would be able to withdraw up to associated with whole life insurance. because of the 40
