Whole life insurance is the most common type of permanent insurance. The reason it’s “whole” life is because, unlike term insurance, it will pay a death benefit whenever you die – no matter how long you live.

You basically agree to pay regular premiums to a life insurance company in exchange for a guarantee of a specified benefit payable to whomever you designate as a beneficiary at the time of your death. This could be a spouse, your children, or even a charity of your choice.

Whole life insurance is designed so that the death benefit and the premium stay the same through the length of the policy. So although you will pay a higher premium with a whole life policy than with a term life policy – unlike term policy premiums that go up as you get older, whole life insurance premiums won’t generally go up.

In order to keep the premium from going higher and higher as you get older, the insurance company keeps the premium level by charging a rate that is higher now than what’s needed to pay out the death benefit claim. They invest that overpayment and then use it to make up for the higher cost of life insurance for older people.

Earnings on a whole life insurance policy are set by the life insurance company based on the overall return on its investments.

When these earnings go above and beyond those required to cover the death benefit, they’re put into the policy's cash reserve. You can take loans against that reserve, use it to pay premiums, or let it accumulate for retirement.