Whole-Life Insurance

A whole-life policy continues for the whole of life and promises to pay its face value upon the death of the insured to his estate or his beneficiary. There is a possibility that the insured may live to an advanced age and this must be taken into consideration in computing the-premium. This policy is like the term contracts just considered with the exception that, instead of being limited to 3 definite number of years, it continues for the largest possible length of life and will certainly be paid at some time. Since the American Experience table of mortality assumes that all persons die by the end of the 95th year, the maximum possible age for which insurance against death needs to provide in this case will be 95. The net single premium on a whole-life policy issued at age 45 must, therefore, provide against the possibility that the insured will die during his 45th year, his 46th year and so during every year up to and including his 95th. The separate probabilities insured against will be fifty-one in number, i.e. for the years 45 to 95 inclusive.

The chance of dying in each separate year will be multiplied by the face value of the policy ($1,000) and this amount discounted for the number of years between the issue of the policy (i.e. the payment of the single premium) and the payment of death losses, thus:

This amount, $504.59, is the discounted value of all the death claims payable from age 45 until the mortality table assumes that all persons will have died and is, therefore, the net single premium which will purchase a whole-life policy issued at age 45. It is a matter of common observation that there are men who outlive their ninety-fifth year, but since the computations assume that the insured will not have survived this age and since sufficient money will have been accumulated to pay the claim at the close of the ninety-fifth year of life, it is the general practice to consider the policy matured at this time and to pay the claim whether the insured be dead or alive.