Whole Life Insurance Author:    Posted under: Life InsuranceLife Insurance Types


By definition, Whole Life Insurance “is a life insurance policy that remains in force for the insured’s whole life and requires premiums to be paid every year into the policy.”

In most cases, your death benefit and premium will remain the same. Whole life insurance builds cash value. This is a return on a portion of your premiums that the insurance provider invests. You can borrow against your cash value and it is tax-deferred until you withdraw it.

Whole Life insurance has several types of policies. It is important to note that not all jurisdictions classify them similarly, and not all companies offer all the types of policies.

Non-Participating

As a rule, each of the values relating to the policy is determined upon issuance of the policy itself and is effective for the duration of the contract. It is usually unalterable after issue. This would mean that the insurance provider will take on the risk of all future performance against the estimates made by the actuary. If, for example, future claims were undervalued, the insurance company will shoulder the difference. Conversely, if the estimates on future claims are high, the insurance company will hold on to the difference.

Participating

The insurance company shares the excess earnings (also called dividends) with the policyholder. These are usually non-taxable as they are deemed an overcharge of the premium. It follows that the greater the amount of the overcharge by the insurance company, the greater the amount of the dividend received by the policyholder.

Intermediate Premium

This policy is similar to non-participating, with the exception of the premium that may vary from year to year. However, the premium will never go beyond the guaranteed maximum premium in the policy.

Economic

This is a combination of participating and term insurance, in which a part of the dividends is used to purchase more term insurance. Generally, this may produce a higher death benefit, but at a cost to long term cash value. The dividends may be below estimates in some policy years, resulting in a decrease to the death benefit in those years.

Limited Pay

Somewhat similar to a participating policy but you are only required to pay for a certain period, such as 20 years, instead of paying yearly premiums for life. You may set the policy to be completely paid for at a certain age, and the policy will continue for the life of the insured. Because insurance companies will need to build up adequate cash value within the policy for the duration of the payment years to be able to fund the policy for the rest of the insured’s life, the policies will usually cost more.

Single Premium

This is a form of limited pay, and the pay period is usually a single large payment up front. This will typically have fees throughout the early policy years should the policyholder cash it in.

Interest Sensitive

This is a combination of whole life and universal life. Instead of using excess profits to strengthen the increase of guaranteed cash value, the interest of the policy’s cash value changes with current market conditions. As with whole life, death benefit remains unchanged for life, and like universal life, the premium payment may vary, but never above the maximum guaranteed premium within the policy.

Sources: http://en.wikipedia.org/wiki/Whole_life_insurance

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