A whole life insurance policy is different from a term life insurance policy in that with a whole policy, your policy is good for your entire life opposed to having your insurance policies valid for specific terms of your lifespan. The other major difference between whole and term insurance policies is that with whole life policies, a portion of your premiums each year are placed into an investment account from which you may borrow money or cash out. A universal insurance policy is one in which any payments made above the premium amount go toward the amount of the cash payout.
Types Of Whole Life Insurance Policies
There are three main types of whole policies: traditional, single-premium and interest-sensitive whole life policies.
When you have a traditional whole policy, you are given a guaranteed set amount as a minimum rate that you will earn on the investment portion of your policy. With this type of policy you can plan for a minimum amount of money you will earn on your investment.
When you have a single-premium whole life policy, you are paying for your entire policy up front. This type of policy is for someone who has a large sum of money that they would like to invest in the policy. Money is accrued and interest is paid like a normal whole life policy.
When you have an interest-sensitive whole life policy, you have a bit of flexibility to change the amount your policy will pay upon your death. The flexibility of this type of whole life policy is typically based on the rate of return on the investment portion of your policy and on the current state of the economy.
The Benefits Of Whole Policies
A whole life policy offers one main benefit over a term life policy: a built-in investment feature. This is great for someone who may not be skilled in the area of investing money in another manner. With a whole life policy, you are given a premium that you pay, and a portion of that payment goes into a separate investment account. You may cash out your investment at any time and may borrow against it. You do not pay taxes on this investment, until you receive money from this account.
Another benefit of having a whole life policy is that with this type of policy the holder has life insurance coverage for the duration of his life for as long as he pays the premiums. This coverage continues without having to obtain any additional medical examinations. If you pay enough in premiums for your whole life policy in the first few years, your investment account in essence could pay for your lifetime of coverage; in this case you would not have to pay anything additional for the policy for the duration of your life.
When Is A Whole Policy A Good Idea?
Most investment advisors suggest you should not lump your life insurance policy and your investments together. Most advisors say you should instead purchase a term policy and invest your money in a separate retirement account. With that said, many advisors say a whole life policy does make sense for the individual who has difficulty maintaining a retirement or other type of investment account.
This article focuses on helping consumers understand whole life insurance choices and learn some of the basics of term life insurance before purchasing.
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