Whole life insurance is an insurance policy that pays a benefit if the owner dies when he is young and converts into a pension if the owner lives to be old. Most whole life insurance policies allow the owner to refuse the pension benefit and instead leave the pension amount to his children after he dies.
John paid $1000 in life insurance premiums every year for 40 years. The company divided his premium into two pieces. One piece paid for his life insurance and what was left after that was credited into an account for him. After 40 years he stopped paying premiums. At this point John has a choice: he can convert the amount the life insurance company has saved for him into a pension or he can keep the money with the insurance company to be paid as a death benefit to his heirs.