Index | Life Insurance | Whole Life Insurance
Whole Life Insurance
Whole Life Insurance is one of the most common types of Permanent Life Insurance. Whole Life contracts run for the whole of the policyholder's life and accumulate a monetary value which is paid out when the contract matures or is surrendered. This feature, which is one of the primary benefits of Whole Life Insurance, is known as cash value or cash surrender value. The cash value is normally less than the policy's face value. However, the cash value can grow throughout your life as the interest rate return is gradually added to it as long as you pay the premium.
What makes Whole Life Insurance a profitable investment is that no taxes are laid on the interest growth. You have to pay taxes only if you cash in your policy and receive more than you put in. Even in this case only the excess value - the difference between the cash value you receive and how much you put in - is liable to taxes. Under the insured's death, the beneficiary receives the death benefit which is tax free. Whole Life Insurance thus provides a long-term protection for your family and business as well as the death benefit.
The policyholder can access the cash value through loans or surrenders. One option is to borrow money against the cash value of your policy. It is generally viewed as a plus of Whole Life Insurance policies because ?if you are in an urgent need of money you can take a policy loan and you do not have to pay loan interest. In this case the amount of your loan and loan interest will be deducted from the death benefit or from the cash value if you withdraw your coverage and stop paying premiums. You should know that there may be a waiting period of up to three years before a loan is available. Another option is when you surrender the policy altogether and take the surrender cash value from your savings account. If you stop paying your policy premium, you can take the cash for your needs or you can use the cash value to buy a continuing policy for a shorter period. The money you receive is normally liable to taxes.
If you need to stop paying premiums (for example, to pay mortgages, loans, debts, or to pay for your children's education), you have two options which will allow you to keep Whole Life Insurance. So, your premium can be subtracted from the cash value and you will receive the same amount of coverage at that. Or you can opt for a lesser amount of coverage. Keep these options in mind because they provide a really viable alternative to terminating the policy and therefore allow you to maintain your protection of your dearest and nearest.
One of the noticeable advantages of Whole Life Insurance is that you pay a fixed premium for life. There are no increasing premiums like, for example, in Renewable Term Insurance. The premium is stable and you are perfectly aware of the expenses you will incur. As long as you pay the premium, it guarantees that the death benefit will be paid out.
Premiums are usually fixed when the policy comes into force and depend on the insured's age and medical condition. At first it may seem to you that the premiums for Whole Life Insurance are too high because the fees associated with setting up a policy are really great. This is because a portion of your premium goes to fund the cash value account. But compared with Term Insurance premiums, Whole Life premiums are relatively low because with Term Insurance your premiums grow as you get older and you have to pay substantial sums of money to renew your policy. According to the conventional rule, the younger you are when you purchase Whole Life Insurance, the easier it is for you to cover the costs of your insurance later. As years go by, you build the cash value and your savings account grows. At a certain point when your savings become significant, you simply need less insurance to hold down the cost of it. It is mere arithmetic.
There is one interesting detail you should know if you are considering purchasing a Whole Life Insurance policy. These policies do have a termination date. It is usually your 100th birthday. If you live up to your 100th birthday, your policy is automatically terminated and you are paid out the cash value.
There are several general types of Whole Life Insurance policies offered by insurance companies on the territory of the USA.
The first type is represented by non-participating policies. The peculiarity of this type is that all the values, such as the cash value, the death benefit and the premiums are determined in the event of the policy issue. The insurance company therefore bears the responsibility for potentially underestimated expenses.
The Whole Life Insurance policies of the second type, so-called participating policies, usually offer a non-guaranteed cash value element made up of dividends which the company shares with its policyholders. There is an evident relation: the greater the success of the company's performance, the greater the dividend. Dividends can be paid in cash or can be used to reduce your premium payments.
The following policies are in between participating and non-participating types, having elements of either type or sharing features of both. Some also have features of other Life Insurance policies.
Indeterminate premium policies are similar to non-participating policies with the exception of variable premiums. Premium payments are subject to a limit indicated in the policy.
Limited Payment Whole Life Insurance requires you to pay all your premiums within a limited period of time, either with an indication of a number of payments or an indication of the age up to which you are to pay the premiums. Because the premiums are paid out within a shorter period, they are likely to be higher than usual Whole Life Insurance premiums.
Another form of a Whole Life Insurance policy is Single Premium Life. You pay a policy premium only once to initiate the policy. The premium is a lump sum. The money is invested in a savings account and the cash value accumulates in this account. If you withdraw money from the savings account prematurely, you pay a special fee for it. But loans can be taken right away without any waiting period and without any loan interest credited.
The Economic Whole Life policies are essentially a blending of Participating Whole Life Insurance policies and Term Life Insurance policies due to the fact that the dividends are used to provide additional benefits within Term Life Insurance. This typically refers to a higher death benefit at the cost of a cash value provided by long-term policies.
The Interest Sensitive Whole Life Insurance is a relatively new type of policies. It is a blending of traditional Whole Life and Universal Life Insurance policies. Similar to Whole Life Insurance, the death benefit remains constant for life. Similar to Universal Life Insurance, the premium payment can vary under current market conditions but not above the set limit thus allowing more flexibility in premium payments.
Generally, when an individual is in two minds about the most suitable type of Life Insurance, the comparison is often drawn between Whole Life and Term policies. As is evident from the name, Whole Life Insurance is supposed to last for a long period of time. Therefore, the major difference between Whole Life Insurance policies and different types of Term Life Insurance policies lies in the fact that the former protect you against the inevitable - your death that can befall you at any time, whereas the latter protect you against the possibility of your death within the period when your coverage is in effect, be it one year, five years, or thirty years.
If you are not sure whether you are going to keep your insurance for a long time, it is advisable to double-check your choice. Whole Life may turn out to be the wrong type of insurance for you. Despite all its potential benefits which allure people into purchasing Whole Life Insurance, you must be very careful and aware of potential disadvantages when choosing a Life Insurance policy for you. For example, have you grasped that this type of insurance offers no or little premium flexibility and no face value flexibility? Besides, your insurance company will control the way you invest your premium money. And the last but not the least, this type of Life Insurance can be rather costly. All these things considered, you will surely take the right decision as to whether Whole Life Insurance is for you and what type of policies are most appropriate to your needs and plans.