Whole Life Insurance
Whole Life Insurance provides permanent protection for the whole of life – from the date of policy issue to the date of the insured’s death, provided that premiums are paid.
Premiums are set at the time of policy issue and remain level for the policy’s life. Unlike term insurance, whole life combines insurance protection and savings or cash value which builds over time. Cash value build-up may provide a source for living benefits, for example, helping pay off a mortgage, or a child’s education, or cash surrender value if the policy is ever cancelled.
Benefits of Whole Life Insurance:
- Protection for life -It doesn’t expire or go down in value.
- Level Premiums -The rate you pay for your policy will never increase.
- Cash Value -A portion of your premium builds cash value which can be borrowed against.
Common Types of Whole Life Insurance:
- Participating-A participating life – insurance policy is one that is entitled to receive a portion of the profits that are generated by a life insurance company. This policy is also referred to as a “with-profits” policy in the United Kingdom. This policy is common with mutual life insurance companies where the policy holders act as partial owners of the company. With this type of policy, the money that is received by the individual will not be taxable because it is considered to be a partial refund of the premium which was originally paid for the insurance.
- Non-Participating- Another type of whole life insurance is referred to as non-participating life insurance. With a non-participating insurance policy, you do not receive any of the profits that are generated by the company. With this type of policy, everything is determined on the front end of the policy. This means that the premiums, death benefits and cash surrender value are all figured up front and cannot be changed. If the insurance company does not properly plan for losses, the premiums will not be raised. At the same time, if the company makes extra money, they will not distribute it back to the policy owners.
- Economic- An economic whole life insurance policy provides a dividend payment to the policy owner just like with a participating policy. The difference with this type of policy is that the dividend amount is used to purchase additional term life insurance. This increases the amount of the death benefit based on the amount of the dividend.
- Single Premium- A single premium whole life insurance policy is one that is paid for with a large lump sum at the beginning. Once this policy is purchased, the individual will not have to make additional premium payments over the life of the contract. In some cases, the policy owner may have to pay additional fees for a few years once the contract is initiated.
- Indeterminate Premium- Indeterminate premium is another type of whole life insurance coverage that you could choose to purchase. This type of life insurance has an annual premium that can fluctuate from one year to the next. Generally, with this type of policy, you will have a maximum premium amount that cannot be exceeded, regardless of what may occur with the insurance company.
- Interest Sensitive- Another type of whole life insurance policy is the interest sensitive policy. With this type of insurance policy, your policy will be linked to market interest rates. The interest rates will determine the cash value of your account and in turn, it will affect the amount of premium that you have to pay.
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