Whole life insurance is a type of life insurance that provides a death benefit in the event of death for the insurance policy holder. With whole life insurance, the holder is protected for their entire life, and when they inevitably reach death the insurance company pays the benefit to the contract’s beneficiaries. Whole life insurance polices also include a savings component, which builds up a cash value, something a term life insurance policy will not provide.
On the surface whole life insurance is similar to term life insurance in that a death benefit is given to the insurance holder’s dependents or beneficiaries. However, there are some major differences. Whole life insurance polices can have premiums that can be as much as five times as expensive as term life insurance premiums. This is because term life insurance lasts a predetermined amount of time. The younger a person is, the lower the risk of death, the lower the risk for the insurance company and thus the lower cost for the insurance coverage. Whole life insurance premiums have a higher premium to begin with, but unlike term life insurance polices, there is no risk of these premiums rising.
The policy is often built for a lifetime, and as long as the premiums are paid the policy remains constant regardless of ones health condition or age. With term life insurance, when a term expires, the premium costs will rise to renew because of the older age, and the higher risk of death. In some cases, term life insurance polices will not let a person renew because of a health condition. The premiums paid for whole life insurance go towards a cash value as well as a death benefit, unlike term life insurance, which only provides a death benefit.
With a whole life insurance policy, the premiums paid go toward increasing the cash value and/or increasing the death benefit. The cash value, like money in a bank account, earns interest over time. The cash value and the death benefit can never decrease in value unless the policyholder starts to withdraw the cash from the policy or they stop paying their premiums. The interest on the cash value is guaranteed, as is the death benefit. When sitting down with your local independent life insurance agent, you will want to ask about the strength of the company providing the life insurance policy because this guarantee is only as strong as the company that holds the policy.
There are tax advantages to a whole life insurance policy as well. With a while life insurance policy, the premiums are paid with after-tax money. The cash value grows without being taxed. Whole life insurance policies also pay a dividend, which also are not taxed. Tax laws do change and you should consult and agent (2013).
This is a basic overview of whole life insurance and what some of its advantages are. If you are looking to protect your family’s financial future, then it is important to consider a whole life insurance policy. Your local independent life insurance agent will be able to discuss the benefits of a whole life insurance policy and will be able to help sort through all of the various polices that are offered.
What is participating policy? Whole Life Insurance?
Should I look for whole life insurance that has participating insurance that would pay dividends or not? A participating policy is a policy that pays you dividends on the company’s earnings. After a company collects premium funds and hasn’t used all the portions for death benefits, the difference is divided between the participating policyholders. Percentage, paid claims, and other costs will determine how much a dividend you will receive at the end of the year. This life insurance premium is actually the refund part of your premium. The dividend is considered a partial refund, so it is not taxable as income. Read your contract carefully for more details of when and how you will be paid a dividend. If you are not sure about this type of policy, talk with your independent agent, to analyze your situation and find the right policy for you.
Other Enhanced Insurance articles related to Forms of Life Insurance:
Variable Universal Life Insurance
Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
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