If you are in the market to purchase life insurance, you may be surprised to find that there are a wide variety of policies on the market designed to meet your needs. But all life insurance breaks down to two basic types. These are term insurances versus permanent insurances. While term insurance is the much cheaper of the two, it will eventually expire. Permanent life insurance is more expensive, but it will last as long as your premiums are paid. One type of permanent life insurance is whole life, and it may be just what you are looking for.
What Is Whole Life?
Whole life insurance is probably one of the oldest types of policies on the market, and it is sometimes referred to as straight life or ordinary life. This is a basic type of life insurance policy that creates a contract between you and the insurer that states that as long as you pay the policy, it will remain in effect. Your premiums will not change as you age, but are based on your age at the time of issue.
As long as your policy remains in force, it will pay the face amount of your policy at your death, or at age 100, depending on the terms and conditions of your policy. For a basic whole life policy, this means that upon your death, or your 100th birthday, your death benefits will be paid to you if you are living or your beneficiary if you are dead. While this is the bare bones of whole life, they are now designed to do much more than this.
What Are The Advantages Of Whole Life?
Whole life policies now come with many advantages that are not found in term insurance.
Grows Cash Value
Because whole life insurance is built on a level premium, it averages out the cost of your insurance over your lifetime. The differences between the cost of your insurance and the cost of your premium are then invested and added to the value of your policy. You then have the ability to grow this cash value within your policy to provide extra cushion in the event of your death.
In addition to leaving this money growing in your policy, you are also able to borrow this money from your policy without incurring any type of tax penalties. Although the insurance company may charge you interest on the amount you borrow, this is often offset by the dividends the policy is paying.
This feature makes borrowing from your policy in the case of an emergency far more attractive then tapping into your 401k or other types of investment accounts.
If you choose to discontinue your policy at a later time, you will have the ability to receive your cash value in one of three ways. They are:
- Reduced paid-up insurance
- Extended term insurance
Paid Dividends Are Non-taxable
While your whole life policy may not guarantee dividends, most reputable insurance companies who are making a profit are going to pay them annually to their policyholders. Unlike stocks and bonds, where dividends are shown as taxable gains, dividends paid within you policy are not taxable. They are often shown as a return of premium.
Policies Have Surrender Value
If you stop paying on a term life insurance policy, you basically lose everything you have invested into it. This is not the case on a whole life policy. If you have held the policy more than a couple of years, and the policy has a cash value, the insurance company will return some of the money you have invested in the insurance. Just remember that by surrendering your policy, you will no longer have a death benefit.
Speak to a life insurance company about whole life, or one of the other many products they offer. They will be able to find you the right coverage to meet all of your needs. Check out websites like http://www.unitedsecurityagency.com to learn more.