What is whole life insurance, and how do life insurance companies profit from selling it?

Whole life insurance is a level term insurance which runs to a particular age, the age is usually around 95 to 100. Whole life insurance is considered very expensive in comparison to term insurance. The cash value of the insurance policy grows very slowly and at the beginning of the policy you can expect your money to drop in value rather than to rise.
A negative return in the first 10 years of owning the policy is considered completely normal. In the long run an average return of around 1-4% can be expected, but this generally depends on the company which you have your policy with. You can take money out of your policy at any time but this would be considered to be a loan and an average rate of between 5 and 8 percent will be charged on repayments.

In the event of your death the insurance company will keep the cash value of the policy but will pay out the initial value of the policy to any relatives or family, but any loans or missed payments will be deducted from this amount to give the true policy figure. As the policy runs until you are around 100 years of age it is unlikely that you will live to see the money and spend it for yourself, but if you did live to be this grand old age, then the cash value of the policy would be paid out, but on the downside you would not be covered by life insurance any more.

Usually the only winner from life insurance is the insurance company itself, although if you do own a house which is in joint names, then a life insurance policy is always worth considering primarily for piece of mind. Agents usually try to push life insurance upon you. It is worth remembering that the only person who usually benefits from the policy is the insurance company, as usually when people have finished paying their mortgage, they ditch the life insurance policy. Companies profit from selling life insurance due to the fact that many people take out these policies, yet never get chance to weigh them in, many people decide that life insurance is not for them after paying it for 20 years, meaning that the life insurance company has benefited from 20 years of payments from a particular policy holder and never had to pay out.