Whole life insurance

Whole life insurance is a particular form of life insurance which is enforced for the insured individual’s whole lifetime. Most of these policies require annual payments to be made for the plan. Whole life insurance is a sensible alternative to term life insurance as it will pay the beneficiary when the insured individual dies regardless of when the death may occur. With a term life insurance the payment is only made if the insured individual passes away within a set amount of time and there are other limits which may be instated as well.

Many people choose whole life insurance over term life insurance simply for the facts that were just mentioned. Some people have invested in term life insurance and continued making payments for over 20 years and ended up with no financial benefits at all. This is due to the fact that there is a term which the individual must pass away for the policy to pay out. With no cash-building option offer with the term life insurance plan either it means that there is the possibility of the policy holding no value.

A whole life insurance policy will be more expensive than a term life insurance policy but it is not without merit. If you invest in a whole life insurance policy then you have the possibility of having cash value for your policy. This means that there is a reserved amount of funding that would be created for death benefits to the beneficiary. Additionally, interest would be added to the cash value that is being saved so there is a larger amount of money that is accumulated.

If no death benefits were claimed by the time the insured individual reaches the age of roughly 95 years old then the cash value of the policy would likely match the amount of the death benefit. This means that there is a lower risk of the policy not paying off and there is a higher chance of the amount of money that is paid out to the beneficiary being more than what is put into the insurance account. Keep in mind that the cost of whole life insurance is much more than term life insurance but you do have guaranteed coverage.

Types of Whole Life Insurance Policies
The different types of common whole life insurance policies that are available include the following: non-participating, participating, single premium, indeterminate premium, economic, and limited pay. There is another form of whole life insurance, entitled interest sensitive, which is starting to become popular. Take a look below to find out more about each type of whole life insurance policy.

In a non-participating whole life insurance policy the cash value of the plan (benefits, premiums, etc) will be decided when the policy is created. These values will be valid until the contract is up and in most cases they cannot be modified at all once the contract is finalized. The insurer will be taking the risk of using the estimated amount for a claim. If the death claim ends up being more than the estimated amount then the insurer will be required to pay the difference as well. Then again, if the estimate was more than the death claim then the insurer will keep the difference.

In a participating whole life insurance policy any of the profits from the plan are shared. The refunds are issued to the policy holder and are generally non-taxable as they are often classified as overcharges.

Single Premium
In a single premium whole life insurance policy the premium is paid up front all in one payment. If the policy holder decides to cash the plan in then that individual will endure numerous fees for surrendering the policy.

Indeterminate Premium
In an indeterminate premium whole life insurance policy the claims work as they would with a non-participating policy. The main difference would be that the premium amount may change each year. If the premium amount is changed there is still a limit to the maximum premium amount. This will be stated in the conditions of the policy.

In an economic whole life insurance policy the dividends in the account will be partially used for investing in supplemental term insurance. The result of this will be larger death benefits unless the dividends are lower than expected. The death benefits could be lowered based on the amount in dividends as well. Economic whole life insurance is basically a combination of term life insurance and participating whole life insurance.

Limited Pay
In a limited pay whole life insurance policy the insured individual will only be required to make premium payments for a set amount of years. The idea of a limited pay policy is that once the policy holder reaches a certain age it will be paid off completely. Usually the target age for the policy to be paid off by is between 60 and 80 years of age. A limited pay policy is often compared to a participating policy with the only major difference being that the premium payments are only made for a certain amount of years and not for the lifetime of the policy holder.

Interest Sensitive
In an interest sensitive whole life insurance policy the guaranteed cash value of a policy will be factored by market conditions. This will provide a much more efficient interest rate for the cash value of the insurance account. The interest sensitive policy is basically the result of mixing a few characteristics of the whole life insurance policy and the universal life insurance policy.

Final Thoughts

There are many different types of whole life insurance policies to choose from. If you are looking for your insurance policy to have some guaranteed value then you should choose from these insurance options. You may be required to pay larger premiums, especially in the early years of the policy, but you are guaranteed to have some cash value on the policy. To close, you have many different options when setting up a whole life insurance policy so this is definitely a route to consider when shopping for life insurance.

Last updated on May 19th, 2010 and filed under Health Insurance. Both comments and pings are currently closed.

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