Whole life insurance policy plans – What You Need To Know
A whole life insurance policy not only provides coverage but can act as an investment vehicle as well. This type of policy is generally more expensive then other types such as term life insurance, but there is the potential for more stability. It offers more options for someone who is looking for a return on their policy and may be well-suited for some people.
Whole Life Insurance Policy – Benefits
What are the benefits of a whole life insurance policy? It often comes with fixed premiums, a plus for future financial planning. Whole life insurance policies also come with guaranteed death benefits. The biggest draw of a whole life insurance policy is the savings feature. A portion of the premiums are invested. The insured then has the option of borrowing against the cash value of the policy.
A whole life insurance policy is designed to offer an individual peace of mind, and a system of investment opportunities that can yield significant savings or income for oneself or one’s loved ones. These investment opportunities are not available for all whole life insurance policies, and different policies have different plans. Understanding the difference between term limited life insurance and whole life insurance policy plans is the first step to being able to identify which insurance is best suited to one’s needs, and will allow for a proper framework of the entire whole life insurance policy system to be outlined.
Term Life Insurance versus Whole Life Insurance Policy
The main difference between a term life insurance policy and a whole life insurance policy is cost. A term life insurance has lowered premiums owing to it’s shorter duration, and necessity to be renewed. A whole life insurance policy does not need to be renewed and has higher premiums. These higher premium are reflected, however, in the duration of the policy, as whole life insurance policies extend over the course of one’s lifetime, but never increase past the stated amount.
The premiums associated with a whole life insurance policy are determined by what type of policy chosen, and the age of the policy holder. A level premium policy, for example, would have premiums consistent over one’s lifetime, with the the early years of one’s premium being used as a sort of buffer to assist in the payment of the older years.
Typically, such policies also include an accumulation of cash value-the buffer-that can be tapped into as an emergency fund for the policy holder. Doing so would increase the level payments on the life insurance to accommodate the decreased buffer size for future payments. This accumulated cash value is tax free up until the point it is tapped into, and any payments made into a life insurance policy are also tax free. Cash value can also be fully returned to the policy holder if the the policy is surrendered, but this will allow the amount to be subject to taxation.
In many cases whole life insurance is also accompanied by dividends, which can be paid out to the policy holder by the insurance company based on it’s performance in outside investments. These investments are created using the accumulated cash value of the whole life insurance policy, and generally include interest as well. Such amounts can be used to reduce the overall payments of the policy, taken as cash, or allowed to accumulate further interest. Dividend payments are not guaranteed, however, but losses are guaranteed against. Dividends are not subject to taxation, as well.
Whole Life Insurance Policy Plans – Forms of Payment
Whole life insurance policy plans come in two further forms of payment plans. A limited payment whole life insurance policy would offer the policy holder the ability to designate the end of payments for his policy, and offers higher premiums to offset later years of non-payment. A typical whole life insurance policy simply continues to require payment over the life of the policy holder, with typical payments being reflected in fixed versus dynamic payment plans.
Types Of Whole Life Insurance Policy
There are different types of whole life insurance policies available. A non-participating whole life insurance policy offers a lower premium and fixed costs but no dividends from the investment portion. With a participating policy dividends are paid if the company is doing well with investments and if mortality and expense savings are favorable. With a limited payment whole life insurance policy payments are made for a set number of years. The premiums are of course higher but once they have been paid the insured does not have to worry about making payments while still enjoying the benefits of coverage. A single premium policy offers the option of paying one large sum at the beginning of the policy. In this case the insured can borrow against the policy right away as there is an immediate cash value.
Whole life insurance policies are not for everyone. The premiums are high and there are commissions to pay. It may be more lucrative to use other investment vehicles as whole life insurance policies do not generally provide a great return. For younger couples and individuals who are interested in protection but who do not have a large disposable income a whole life insurance policy may not be the best choice.
Who are whole life insurance policies ideal for? For those who can comfortably afford the premiums they do offer some great opportunities. As part of estate planning they can help to cover estate taxes. For older, financially stable parents the potential savings benefits may be worth considering. Also it is important to keep in mind that even term life insurance policies are high for people over the age of fifty. The fixed or more stable rates of whole life may be a better deal in the long run for those who are close to middle age.