History
All life insurance was originally temporary (term) insurance. However, because term life insurance only pays a claim upon early premature death within the stated term, a number of term insurance policy holders became upset over the idea that they would most likely be paying premiums for 20 or 30 years and then wind up with nothing to show for it. Temporary insurance only pays out 2-3% of the time. This has become known as the "Lost Opportunity Cost" called term insurance.
In response to market pressures, actuaries produced an insurance policy with level contributions that would last a lifetime. These contracts would offer a "cash value" which was designed to be a cash reserve that would build up against the known claim-–the death benefit. These policies would also credit guaranteed interest to the cash value account. Upon maturity of the contract (usually at age 95 or 100), the cash value would equal the death benefit. By guaranteeing the death benefit, the policy owner was assured that insurance coverage would be in force when the insured died, allowing them to unlock and exploit other assets. Upon the death of the insured, the cash value would be surrendered to the insurance company and the beneficiary would receive the death benefit. If, before the death of the insured, the policy owner wished to borrow the cash value and forfeit the death benefit, the cash value would be paid back with interest minus dividends paid..
Read more about this topic: Whole Life Insurance
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—Walter Bagehot (1826–1877)
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—Ellen Glasgow (1874–1945)