Most investors define whole life insurance as a permanent form of life insurance that offers certain guaranteed benefits, as well as a guaranteed amount of cash available to the holder or beneficiary. These policies offer premiums of a set amount throughout a person's life. Usually, the cost does not increase as the person ages.

Some people purchase whole life insurance as an investment. They pay a set amount of money each month, knowing that the premiums will be invested to earn interest. The interest earned through these premiums will be added to the value of the insurance policy until it reaches the cash value purchased by that person.

On occasion, people need extra money. Those who have whole life insurance policies can borrow against the current cash value of the policy. If they do not repay the amount before the policy is surrendered, the person or beneficiaries will receive the value of the policy less the amount that has been borrowed.

Sometimes, people need the money before the policy becomes payable. In this case, they can choose to cash in the policy and receive the cash value of the policy on demand. The insurer, in effect, purchases the policy back from the holder, and no further money will be paid to the policyholder in the future.

For example, a person may choose to purchase a life insurance policy for $1 million. The monthly premium may be $25. The premium will remain $25 throughout that person's life, as long as he or she holds the policy. The premium will be re-invested by the insurance company so that the person will eventually build a cash value of $1 million.

In some cases, a person will die before the policy is completely paid for by the premium. Then, the beneficiaries would still receive $1 million. They would not be penalized because of the person's early death.

Sometimes, however, the person chooses to cash in or borrow against the value before it is completely financed through premiums. In this case, he or she will receive only the policy's cash value. If it is exchanged for its cash value, only the amount of money earned by payment of premiums to that date is available.

Many people find it difficult to define whole life insurance. The concept, however, isn't too hard to understand. This is a guaranteed way to invest a set amount of money, receive a guaranteed return on the value of your investment.

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