As you know there are several types of life insurance, and one of those types is called whole life. Whole life insurance is a life insurance policy that pays a lump sum on death. In some cases, it may also pay if a diagnosis of a critical illness is detected in the policyholder.
Whole life policies can vary a great deal when it comes to the way they are paid out. In some policies, the payout can be a fixed sum of money that has been decided on at the time the policy is started. In other cases, the payout may be dependent on investment performance after mortality costs and other expenses are deducted.
Within the arena of whole life polices, the timing and the amount of the premiums may vary as well. In some policies the premiums are paid at regular intervals such as monthly or every six months and the premium amount is fixed. In other cases, the premium amount will vary according to how the insurance investment is performing.
Whole life can also have a lot of flexibility in how it is bought and used. For example, some policies allow for the payout over a specified period of time, such as ten years. Once this period is over, the policyholder can continue the insurance coverage but usually at a higher premium rate.
These types of life insurance policies are useful for people who need increased coverage while they have dependent children, but will need reduced coverage later on in life that is all but guaranteed. This is not always the case with term life insurance where an illness can prevent the person from getting the policy.
It should be understood that whole life insurance often requires that the policyholder pay premiums for the life of the policy. Another scenario for whole life is for the policyholder to pay u front the cost of the entire policy, or that the cost of the policy be paid within a certain amount of time, such as five years. This can be expensive, and many consumers simply cannot afford the cost when it is presented in this fashion.
There are certain benefits associated with a whole life policy. Many companies will guarantee that the policy's cash values will increase regardless of the performance of the company. This can make a whole life policy an attractive investment for some people.
In addition, there is liquidity with these policies that other types of insurance may not be able to match. Cash values are often thought to be liquid enough to be used for investment capital, but the policyholder must be financially healthy enough to continue making the higher premium payments.
There can be some tax advantages as well, as cash value access is tax-free up to the total premiums paid. The remainder of the value can be tax-free if taken in the form of loans from the policy. If the policy lapses, tax payment will be due on the outstanding loans. If the insured dies, death benefit is reduced by the amount of any outstanding loan balance.
While whole life is a good option for some people, anyone considering this type of insurance should spend some time with a reputable agent in order to learn the details of how to use a whole life insurance policy to its best effects.
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