Whole life insurance is a type of permanent life insurance. A whole life policy has a standard premium for the life of the policy and a cash value table built into the policy. Whole life policies have guaranteed death benefits and cash values. They also boast fixed annual premiums and will not have a reduction in cash value in the event of death or other policy changes.
Return On Investment
One of the downsides of using a whole life policy for its investment purposes is that it may not be competitive with the other savings options available. Another downside is that the cash value of the policy is usually kept by the insurance company upon the death of the insured and the beneficiaries only receive the death benefit portion of the policy. The cash value is only accessible once the policy holder reaches endowment age, usually 95 and older.
The policy holder can purchase additional death benefits on the policy but this does not increase the cash value nor does the cash value become available to the beneficiaries when additional death benefits are purchased. A loan can be taken out against the cash value but the death benefits decrease if the loan is not paid back. It is not necessary to pay back the loan but it will decrease the value of the policy.
In general, unless you plan on living to be 100, a whole life policy is a poor investment option. If you need to purchase life insurance anyway it could provide another option for investment but using it as a primary investment source is not a good idea. Some of the drawbacks include the loss of the cash value upon death. The insurance company keeps the built up cash value and only pays out the death benefit to the beneficiaries. Its a great investment for insurance companies but not so much for the policy holders.