Last updated on November 9, 2019
Whole Life Insurance
What Is Whole Life Insurance?
Whole life insurance covers you — you guessed it — for your whole life, from the day you buy your policy onward. The main function of whole life insurance is to provide a “death benefit,” which is the lump-sum payment an insurer will dole out when the insured person passes away. Unlike the more basic term life insurance, though, whole life has value outside the death benefit, including a cash value component and plenty of add-on coverage options.
After reviewing the information here and you like what your reading, please take the initiative and go to the quote tap above and click on the Whole Life. Once you’re on the page, you can fill out your information and we will contact you with your quote.
What Is Permanent Life Insurance?
The first thing to know about whole life insurance: It’s actually a type of permanent life insurance. Both Whole Life and Permanent Life is really one in the same. People refer to this as well as “Whole Life”. As a broad category, permanent life insurance is the alternative to term life insurance. It has no expiration date, meaning that a death benefit payout is guaranteed (whereas term life policies only pay out if the insured person passes away during their policy’s specified time limit). You can refer to the tab above for Term. If you’re not confused yet, please read on.
How Does Whole Life Insurance Work?
Unlike term life insurance, which only covers you for a set time period, whole life insurance doesn’t have an expiration date. As long as the policyholder keeps paying the premiums, their insurer promises to pay out when they pass away — whether that’s at age 85 or 105.
While premiums for whole life are higher than those of term life, a portion of each monthly whole life payment gets deposited into an interest-earning “cash value account,” which the insured person can then borrow from or invest throughout their lifetime. Cash value can also be used as means for setting up tax-free inheritance or estate planning.
People also often choose to enhance their whole life policy with “policy riders” (supplemental coverage options) that might allow them to extract value from the insurance during their lifetime. The most popular example of this is an accelerated death benefit rider, which lets the insured person use a portion of their policy’s death benefit during life to cover costs associated with a critical illness.
These types of coverage add-ons are especially valuable for whole life insurance (as opposed to term life); a whole life policy’s longer duration means that there’s a much greater chance that the policyholder will develop health complications while covered and end up needing to access their policy’s funds.
Whole Life Insurance Facts
Whole life insurance policies provide life insurance coverage protection throughout the duration of the insured policy owner’s lifetime.
• The insured will pay the same predetermined premium rate for the life of the coverage. And the premium never increases.
• Whole life insurance policies develop accumulating cash value over time. This cash value equivalency can be leveraged against personal loans or stock market transactions by the insured or policy owner. Whole life insurance policies can effectively be treated as a savings account by the policy owner, as long as premium payments are timely and up to date.
• Your insurance company may be able to invest percentages of your policy into financial bonds, stocks and securities on your behalf. Consult your agency and policy when making such a purchase.
• If the cash value of the loan or financial transaction leveraged against the policy is lost or unpaid, the policy owner is then responsible for paying the difference back into the policy.
• If the insured policy owner passes away while there is outstanding debt leveraged against the whole life policy, then the difference will be subtracted from any future death benefit payments.
• Most policies will allow you to choose how and when to make your premium payments. You may be able to make premium payments on a monthly, quarterly, annual or even semi-annual basis. Whole life insurance policies and coverage plans are designed to accommodate the financial and lifestyle needs of the policy owner.
• The cash value equivalency of your whole life insurance policy can be used as collateral in the leveraging of a personal loan. But this would be dependent on the state of your financial affairs, the length of time you have had the policy and the amount generated in cash value equivalency. The collateralized cash value equivalency amount that would be leveraged against a loan must be paid back in full in a timely manner.
• You will probably have a predetermined fixed rate of insurance when opening the policy. You can then reference your personal policy interest rate to self-calculate the subsequent cash value equivalency growth of your own policy.
• Most whole life insurance policies come with a full cancellation option. If you decide to cancel the policy, then you should receive the full cash value equivalency of the remaining policy as a lump payment or schedule of payments. The amount of the cancellation payment would be dependent on how many premium payments were made to the policy and the number of years the policy was active.
• Depending upon the particular details of your policy, the cash value equivalency it accumulates can be declared tax deferred or even tax-free. Death benefit payments are also tax-free.
• Whole life insurance policies have standard options that allow for spouses and children to be simultaneously added to the original coverage umbrella of the policy. Whether or not extra fees would apply or not depends on the company and the fine print of the coverage.
If you are in the market for a whole life insurance policy, then you should fully understand that you are making a lifetime financial commitment to pay insurance premiums in a timely manner. Make sure your personal financial situation can sustain the financial maintenance of such a purchase.
The development of whole life insurance policies, or namely the practice of insuring people for the duration of their lives contingent upon their death against the payment of premiums, was the natural counter-development policy answer to traditional term life policies.
So let’s take a look at the differences between a whole life insurance policy and a term life insurance policy.
Whole Life Insurance Vs. Term Life Insurance
The type of life insurance coverage and its affiliated, actionable options that you would need or use as opposed to the next person would be vastly different. But when it comes to deciding between whole life insurance and term life insurance, there may be a few key differences to tip you towards purchasing whole life insurance.
• Term life insurance only offers coverage for a predetermined amount of time. It could be 1 year, 10 years or up to 30 years. Unless this is the type of coverage that you desire, the insured owner of the policy can outlive the term of coverage. No death benefits are paid and there are no refunds if the insured outlives coverage. A whole life insurance policy is active throughout the life of the insured, as long as premiums are paid.
• A term life insurance policy has the option of being renewed annually or when it expires, but the premium payments will increase each time it renews because of the persons age. With a whole life insurance policy, the premium rate stays set and never increases.
• It is good to know how much life insurance coverage that you will need in life. You need to be acutely aware of your current personal lifestyle and financial needs if you apply for term life insurance, as you can end up with inadequate coverage needs or even outlive your planned term of coverage. Whole life insurance features lifelong coverage with additional and adjustable policy options.
• If you change employers, then you are apt to lose your employer enabled group life insurance policy and coverage options. Group life insurance is a policy option off-shoot of term life insurance. Whole life insurance, as an independent insurance policy, goes wherever you go. Just be sure to keep your insurance company and agent updated whenever you move.
Let’s look through some of the available policy options that can be actuated with a whole life insurance policy plan.
Dividends
A dividend is a financial cash back payment of a percentage of premiums. On an annual basis the insurance company or agent will assess the progress of your whole life insurance policy in reference to cash value equivalency accumulation, financial stock performance, if applicable, and so on. The overall performance of the insurance company as a whole may also be projected into the dividend as well. It all depends upon the company and the policy.
• If your insurance policy over-performs against its projected cash value equivalency status, then the insurance company will refund you the difference in the form of a dividend. Dividends are paid out annually.
• Think about how your tax return refund is based on your taxes, how much of your income is deducted into that return and so on. Well, comparatively speaking, an insurance company financial dividend is like a tax return refund based on the performance of your overall insurance portfolio.
• Most, if not all, insurance company dividend payments are considered non-taxable. This is an industry fact and open secret that more policy owners, consumers and prospective insurance policy owners should be aware of.
• Upon request, the dividend can be paid out directly to the policy owner in the form of a check.
• The dividend can also be used to augment an existing insurance policy or to pay premium payments.
• A dividend is considered to be a financially integrated revenue stream component of the overall cash value equivalency of the policy itself. The dividend never loses its value.
Just be aware that not all companies pay dividends and only offer straight whole life with no other features like dividends. A good reason for this is some people prefer having just the basics (less complicated).
Cash Value Equivalency Exemption Protection
Enrolling in a whole life insurance coverage program brings with it specialized legal protections that covers your policy and its cash value equivalency status.
The death benefit and all other monies, funds and stocks related to a whole life insurance policy are legally protected from creditors, loan officers and even legal action in the event you are sued.
Life insurance policies are meant to provide posthumous financial security protection for the beneficiaries of the policy owner. Therefore, such policies and funds are legally protected from creditors and legal action stemming from the collection efforts of outstanding debt and/or bankruptcy.
Disability Option
This is a widely available option that is available on most whole life insurance policies that the general public and most consumers may not know about. Depending upon the insurance company and the fine print details of the policy, if you are injured or sick, the disability option clause of your whole life insurance policy could mandate that your insurance company take over the payments of your premium.
What You Should Do Next
Make the next move to make sure that your needs and the needs of your family are covered by a good whole life insurance policy. Premiums never increase and coverage last the lifetime duration of the insured.
Death is an inevitable facet and truism of life. So prepare for it. Go ahead and fill out the quote and have one of our agents contact you. Don’t let that financial theft take what you have been working for.