GLOSSARY

Whole Life Banking & Whole Life Insurance Glossary

Definitions and explanations of key whole life banking terms — written for practitioners who track their own banking systems.

Terms defined

WLB

Focused on

Mar 2026

Updated

Last updated: March 2026

Whether you're new to whole life insurance or an experienced whole life banking practitioner, the terminology can be dense. This glossary covers the most important terms you'll encounter when tracking and managing cash value life insurance policies — from basic concepts like cash value and dividends to advanced metrics like capital velocity and loan-to-value ratio.

Each term links to a full explanation with examples and context for how it applies to your policy management.

Terms

How to use this glossary

Each term links to a full explanation with examples, formulas, and how Policy Stack tracks it in your dashboard. Start with Capital Velocity or Policy Loan if you're new to the whole life banking framework.

Base Premium vs. PUA Premium: The two components of a whole life insurance premium: the base covers the death benefit and guaranteed cash value, while the Paid-Up Addition (PUA) rider accelerates cash value growth.
Capital Velocity: A measure of how efficiently you cycle capital through your whole life banking system — total capital deployed divided by average available capital over a time period.
Cash Surrender Value vs. Cash Value: Cash value is the total accumulated value inside your policy; surrender value is what you’d receive if you canceled, which is lower in early years due to surrender charges.
Direct Recognition vs. Non-Direct Recognition: How your insurance carrier treats dividend crediting when you have an outstanding policy loan — either adjusting the rate on the loaned portion (direct) or keeping it the same (non-direct).
Dividend (Whole Life Insurance): A distribution of surplus from your mutual insurance company, credited annually to participating whole life policies based on the company’s financial performance.
Loan-to-Value Ratio (Life Insurance): Your outstanding policy loan balance divided by your current cash value — the key risk metric for monitoring policy health when loans are active.
Modified Endowment Contract (MEC): A tax classification triggered when cumulative premiums exceed IRS limits, changing the tax treatment of policy loans and withdrawals from tax-free to taxable.
Paid-Up Additions (PUA): Additional premium payments that purchase small blocks of fully paid-up whole life insurance inside your existing policy, dramatically accelerating cash value growth in the early years.
Policy Loan: A loan from your insurance company using your cash value as collateral, where your cash value continues earning dividends while the loan is outstanding — the core mechanism of whole life banking.
Policy Restoration: The process of repaying policy loans to restore full borrowing capacity, returning capital to your banking system for redeployment.
Whole Life vs. IUL vs. VUL: The three main types of permanent life insurance with cash value, each with fundamentally different growth mechanics, risk profiles, and tracking requirements.

Track all of these metrics automatically with Policy Stack.

Methodology & Transparency: This content was created by the Policy Stack team. We are committed to accuracy and fairness in all comparisons. Feature information is verified against public documentation and direct product testing. If you notice an error or have a correction to suggest, let us know.