In whole life, how is death benefit funded and what is the lifestyle of premiums?

• A. Ending death benefit early; premiums decrease after the first year.
• B. By a combination of cash value and pure insurance (mortality charge), premiums remain level for life.
• C. By dividends only; premiums are paid only when dividends are issued.
• D. By state subsidies; premiums are waived for the elderly.

Answer: (B)

In a whole life policy, the death benefit is funded by a mix of the cash value that the policy builds up and the pure insurance cost (the mortality charge) that covers the life protection. The premium is level for life, with part of it going toward the cost of insurance and the remainder credited to cash value. Over time, the cash value grows and can be accessed or used to support the policy (loans, withdrawals, or paid-up additions in participating plans). If you borrow from the cash value and don’t repay, the death benefit is reduced accordingly. This combination—level premiums plus the dual use of funds to cover death benefit and accumulate cash value—explains why the premium stays level for life and the death benefit is funded through both elements.