Whole Life Insurance Explained

  Insurance is one of the few products you purchase hoping you will never have to use. Unlike other kinds of insurance such as health insurance or homeowner’s insurance, whole life insurance is guaranteed to pay off provided you continue to pay the monthly premiums. No one lives forever and death is the only certainty.

  Term life insurance will only protect you for set amount of years. If you are alive at the end of the term the coverage ends with the insurance company pocketing the premiums. Whole life insurance on the other hand extends coverage throughout your life. Whole life policies also build a cash value from investments made by the insurance company of a portion of the premiums paid. These investments may be directly tied to the stock market and result in substantial investment growth that you can borrow against during your lifetime.

  Some whole life policies offer a guaranteed level premium that will never go up so you know what your monthly premium will be. Others offer a flexible premium that will allow you to invest more into the policy when you can and pay less should the need arise without losing coverage. You have to make sure that you maintain enough of a cash value in these policies to keep the coverage alive. Lack of planning or paying in to little up front can result in skyrocketing premiums as you get older and the yearly cost of insuring your life increases. This is what makes the guaranteed level premium so attractive. The younger you are the less you pay and you will be able to lock in to a policy that pays a substantial death benefit while maintaining the low premium even when you are in your 80’s.

  Many term policies are advertised as allowing the insured to convert to whole life during or at the end of the term. However, as the insured is now older the premium of whole life may no longer fit in your budget. This is especially true for those over 65 who have retired and are now living on a fixed monthly income. If your health has deteriorated during the term, converting the policy may be your only option of maintaining any life insurance as you may no longer meet the underwriting guidelines for new policies.

Whole life insurance is a term that most people are unfamiliar with. Most of us have heard the words but we don’t really understand what it exactly is. A little research helps us to see this item more clearly.

Basically, a term policy covers you for the term of your life. A whole life policy does the same exact thing, it also invests your money for added appreciation. Term life coverage is paid to the beneficiary (the person named to get the money) upon the death of the insurance policy holder. Simply put, when the insured person dies, the person they named to get the money collects. These insurance policies often help a family to pay medical bills and burial costs. Payouts however can be quite substantial, even into the millions. Whole life insurance also accrues money for the beneficiary while also investing money into financial markets. This type of insurance carries some element of risk, but it also allows the policy holder to borrow against the profits of their investments. Not a bad way to go overall. Both policies can be locked in at a fixed payment schedule but whole life has the added potential to make money. The policy holder can do quite nicely when the investments made on their behalf mature.

There is a down side though. The added costs to cover the investment end for the insurance companies can be substantial at times. Some have even referred to the whole life plans as ‘forced retirement’ because people can’t always afford the payments so they find ways to collect early. Term life can be considered the sensible plan. While there is no investment potential there is a guaranteed plan for your loved ones. Term is more simple and a safer way to go. Still, a person that has recently begun a family, or someone carrying wealth may prefer the whole life approach. Aristocrats can use the whole life plans to cover the management and tax needs of their estates. Just be sure to brace yourself for the long haul. Whole life plans mean that you need to pay well and often for about 20 years so be prepared. Whole life insurance explained in a simple manner is easier to understand.

Whole life insurance does have its benefits. The most common types are traditional, variable, and universal whole life. Each with common benefits. The benefits of whole life insurance explained in a easy way.

First, when you purchase whole life insurance you may pay a large lump sum up front or make monthly payments. Pending on the amount of coverage will determine your monthly payments. Generally, you pay for only a set amount of years and then you have a guaranteed return. With whole life insurance you have the opportunity to select a concrete amount on insurance coverage, as long as you pay the required premiums. That is the one of the best benefits of whole life insurance, it is not something you pay for as long as you live. The more you apply to your policy the bigger your cash build-up is.. You can build equity in your life insurance policy by putting more into it. Sounds good to know you will have something for the future.

Secondly, if you have been told you have a critical illness, you may borrow against it, providing you continue to pay your premiums. You may also borrow against your policy if needed for certain crisis’ such as loss of employment, health issues, or even the death of a child. When you purchase whole life insurance you may even think of it as a savings or an IRA. ties. You may also avoid tax penalties as long as you continue to repay your policy. But the point is, you have something to fall back on. And if you can afford to do so, pay the large lump sum up front to prevent monthly payments.

Thirdly, it can be considered an IRA or another form of retirement account. The policy holder may even set up a payout date. Lets say you want a full payout on your 65th birthday. This can be done and payment is set to go out in one lump sum distribution. Which for many will be what they live on when they are retired. As we all know Social Security will not be around forever. The more you put into your policy and the longer you continue to pay on your policy the more you will accumulate over time, in other words the higher the investment the better the payout.

Insurance professionals are still debating the value of term versus whole life policies. They both offer protection but differ in costs and of course, in terms of length of the policy. Whole life insurance explained versus term life insurance is our goal.

Term Life insurance

Term life insurance is basically an insurance policy that pays the benefits only at death. It is for a specific number of years and will pay a set(purchased) dollar amount at death as long as the policy is still current and the premiums have been paid. The premiums may increase, but the amount of insurance remains constant unless a new insurance contract is purchased. There is no cash value to the policy if you decide to terminate it prior to the contractual expiration date. There is also no cash value at the expiration date.

Whole Life Insurance Explained

Whole life insurance policies provide death benefits in the amount of the policy and also accrue a cash value. This cash value increases during the length of the contract and may be retrieved by cashing in the policy, which cancels the policy, or by borrowing against the cash value. Any monies borrowed against the cash value of the policy will reduce the dollar pay out at death by the borrowed amount.

What is right for you?

Insurance professionals generally advise that a person consider a term policy only if they plan to keep for a period of ten years or less. A life policy is usually preferred if you expect to live more that fifteen years. As with any type of insurance , it is most important to carefully review your personal and family’s current and future needs prior to making a decision.

Questions to ask

• What is your health?
• Is insurance provided by your work?
• Is it free or do you pay the premium?
• What is your income level and expected level in future years?
• What can you afford in terms of payments for insurance?
• What will be your financial needs in the next few years as related to your family?
• Will you have college expenses for your children?

These are the types of questions to consider when making an insurance decision. Also, you must have confidence in the knowledge and honesty of the agent from whom you are considering purchasing the insurance policy. Review all aspects of of the policies and then make the decision.