Whole Life Insurance
Whole life insurance is the most basic form of permanent life insurance and is best suited for those willing to make a life-long financial commitment. Whole life insurance offers consumers the benefits of fixed premiums, minimum death benefits, and the potential to earn cash dividends. Unlike term life (temporary) life insurance, whole life insurance never expires. However, purchasing whole life insurance comes with a higher premium than traditional term life insurance policies, but does allow consumers to receive financial compensation in the event of a prematurely canceled policy.Options
There are many options to consider when purchasing a whole life insurance policy. Take the time to research and compare multiple quotes before deciding upon not only a specific policy, but a specific insurance company as well. Below are some of the whole life insurance policy options available:
- Participating: This form of whole life insurance allows policyholders to receive dividends. Policyholders accumulate dividends when the insurance provider accumulates excess funds. Policyholders have the option of receiving the dividends in cash, using them to increase the face/cash value of the policy, or to reduce the annual premium costs. Each insurance company outlines their rules and regulations regarding dividend usage and subsequent penalties in the policy prospectus.
- Non-participating: This form of whole life insurance is exactly like participating whole life insurance except that it does not offer its policyholders the potential to receive dividends. However, non-participating whole life insurance does offer the benefits of fixed premiums and a guaranteed face value.
- Level premium: With the level premium whole life insurance policy, consumers pay a fixed annual premium for the life of the policy. When a policy first starts, the annual premiums are lower than when a policy has been in effect for many years. With the level premium option, the insurance company invests the difference between the policyholder’s payment and the current cost of the policy, which in turn provides dividends for the insured.
- Limited payment: This form of whole life insurance is for those policyholders who wish to pay a limited number of payments. For example, if a consumer is 20 years away from retirement and only wishes to make 20 payments towards their policy, using the limited payment option is a wise decision pay off the cost of the policy. In this example, the consumer pays more with each installment, but does receive the benefits of a fully paid life insurance policy when they reach retirement.
- Single premium: For consumers who wish to pay off the entire cost of their whole life insurance policy with one payment, there is the single premium option. Once this amount is paid, the policyholder is no longer responsible for their annual premium. Consumers who choose this option will notice a dramatic increase in the cash value of their policy compared with policyholders who choose to pay their insurance policies with incremental payments.
- Indeterminate premium: This form of whole life insurance provides consumers with the options of adjustable premiums. For example, in lieu of receiving dividends in cash, policyholders can opt to lower their annual premium. However, if the reverse was true and the insurance provider has to increase the annual premium, policyholders won’t have to pay more than the guaranteed maximum amounts determined in the initial policy.
When a consumer first purchases a whole life insurance policy, there are two values: the face value and the cash value. The face value is the amount a beneficiary receives in the event of the death of the policyholder. The cash value is the available amount from which the policyholder can borrow or withdraw. When a consumer first purchases a whole life insurance policy, the face value is much larger than the cash value. However, after a few years of successfully maintaining the policy the cash value increases. If the policyholder decides they want to borrow or withdraw from this portion of the policy, certain penalties apply including reduced death benefits.