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Whole Life Insurance Policies

There are two main types of life insurance namely; whole life insurance and term insurance. Whole life insurance is a form of life insurance that covers you for your entire life and not just for a specific number of years as obtainable in life term insurance. The cash value which is a return on a portion of your premiums that the insurance company invests increases in this form of life insurance which means you can withdraw cash or take a loan against the cash value. Part of your premium goes toward your cash value which in turn could pay off your entire policy after a few years. It is also rewarding because your premium will remain constant during the time you are covered unless you choose to change it, you will have lifelong coverage with no future medical exams. Whole life is also a good choice because you do not pay tax on the cash value until you withdraw the money. The policy is expensive because a claim is inevitable. You should read the bits and pieces of every sentence in your policy before making a purchase to avoid shock in the future. If you do not understand anything, please ask questions.

Whole Life Premium

Some whole-of-life plans charge fixed premiums for a fixed amount of cover. In other words, you know how much the policy costs and the sum assured at the outset. A number of plans also charge fixed premiums up to a certain age, perhaps 65 or 70. You can also choose the percentage of the premium that goes into investment so you don’t have problems paying higher premiums in future. Find out from your potential insurer about the flexibility and effects of premium payments before purchase.

Whole life insurance policies cover several types of policies as shown below:

Non-participating policy
All the values are related to the policy e.g. death benefits, cash surrender values and premiums are normally determined at the issue of the policy and are for the life of the contract and cannot normally be changed.
This leaves the insurance company with the risk of future performance versus the actuaries’ estimates. This leaves the insurance company making up the difference if a claim has been underestimated. On the plus side, if the actuaries estimate on the future death claim is higher, the insuring company will keep the difference.

Participating policy
In a participating policy any excess profit is shared by the insurance company with the policy holder. Normally these refunds are non taxable as they are seen to be an overcharge on the premium. The larger the premium overcharge, the greater the refund/dividend.

Indeterminate premium
An indeterminate premium is much like a non participating policy but the difference is that the premium may vary year to year but without exceeding the maximum premium guaranteed in the policy.

Economic policy
An economic policy is participating and term life insurance together. An economic policy will take some of the dividends and purchase extra term insurance. This will normally result in a higher death benefit but at a cost to the long term cash value. In some years of the policy, the dividends may be lower than the projections resulting in the decrease of the death benefit in the lower years.

Limited Pay
Limited pay policies are like participating policies except the policy holder pays for a certain amount of time, like 20 years. It can also be set up so that payments stop when the insured person reaches a certain age such as 80. Even though payments stop, the policy continues as long as the person is alive. Limited pay policies tend to charge more up front so that they build up the cash value in the policy during the years of payment so that the insured person is funded for the remainder of their life.

Single Premium
Single-premium is for someone who has a large sum of money and would like to purchase a policy up front. Like other whole life insurance options, single-premium whole life insurance accrues cash value and has the same tax shelter on returns.

A single premium policy is like a limited pay policy, the pay period is summed up into one large payment up front. There are normally fees during the early years of the policy if the policy holder decides to cash in.

Interest Sensitive
Interest sensitive is also known as excess interest or current assumption whole life and is a mix of traditional whole life and universal life policies. Instead of using dividends to grow guaranteed cash flow accumulation, interest on the policy’s cash value varies with current market conditions. Like whole life insurance, the policy last for life and like universal life, the premium payment may very but will not go above the maximum premium agreed in the policy.

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