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comes from the cash value that has been built so far plus the mortality benefit up to the full amount of the policy. This means that if the policyholder dies towards the latter end of the policy most of the benefit will come from the cash value, while if death occurs near the beginning of the policy most of the benefit will come from the mortality side. That is why the younger the person is when starting the policy, the lower the premiums are, since there is more time available to build a sizeable cash value to cover the benefits should the person die. For example, if the policy is started at the age of 1, by the time the person is 70 years old, the cash value has grown to a large enough amount to cover a good portion (if not all) of the benefits should the person die. In contrast, a 60 year-old starting a whole life policy would have to pay much higher premiums as there is little or no cash value to cover the death benefits and the time to build a sizeable cash value is much shorter. There are several ways the cash value can be used in a whole life policy:

• Used to cover the benefits payout to the beneficiary should the policyholder die before the policy reaches maturity (usually at age 100). This is generally tax-free.
• Returned to the policyholder (with tax liability on gains) if the policy is cancelled perhaps due to lapse of premium payment.
• Returned to the policyholder (with tax liability on gains) at maturity, which is usually at 100 years old although some newer policies may go beyond 100 years of age.
• Can be borrowed against as a low-interest loan.

As you can see whole life insurance, considering its hybrid nature, addresses both concerns of life insurance and savings in one package. Considering its tax deferred nature, it is used by many as a retirement vehicle. …