The ins and outs of whole life insurance

Life insurance is a complex product that requires a long term investment. Policies are designed to suit the needs of people in a variety of different circumstances, so there is no one size fits all option that anyone could buy. This is why it is important that you get informed and learn about the available possibilities. After all, you will be paying your premiums for years, or your entire lifetime after you have signed the contract, and choosing the wrong type of product could mean that you lose money over time. Term and permanent are the basic kinds of insurance, but each of these includes many different types.

Whole life insurance is a permanent policy that stays with you throughout the duration of your life, from the date of issue until death occurs. Contrary to term, which is only valid for a fixed amount of time, it does not expire, and the benefits will be payed to the beneficiaries after the owner's death free of income taxes. Whole life is used to cover permanent needs such as final expenses and providing financial security for your family and loved ones after you pass on.

This type of insurance has two components: the face value, which is the amount you are covered for, and the cash value that builds up in the policy. The cash value represents a part of the premiums you pay which is set aside, and it constitutes the savings component of the policy. You can have access to this money in the form of a loan or payment of the cash value. In the early years, the face amount is higher, but cash value builds up over time. Should you decide to give up (surrender) the policy, you are entitled to get back the cash value, but not the face amount.
The whole life policy should not be purchased solely as an investment, because its main purpose is to provide protection for the owner. While it does have a growing cash value, the rate of return is lower than that of other investments. The tax benefits and the cash value are important qualities, but they are an added bonus rather than the main reason for buying the product.

The owner of the insurance can borrow money from the policy if there are enough funds in the cash value to secure it. The interest rate that will be charged for the it is specified in the policy, but the owner may be faced with a waiting period if the loan is not immediately available. If there are outstanding debts at the death of the owner, these will be deducted from the benefits. In case the policy is surrendered, any money owned will be deducted from the cash value.

The premiums for whole life insurance are higher than those of a term product, but unlike the latter, they do not increase. Although term is generally considered to be the cheaper form of coverage, upon repeated renewal its cost may exceed that of a permanent policy. The traditional version of whole life requires the owner to pay the same amount of premium for as long as he is alive. Other varieties allow the premium to be payed in a single large sum, or until a certain age, with the policy remaining valid until the end of the holder's life. Before purchasing whole life insurance it is important to assess whether you will be able to continue paying the premiums for as long as you live, because this type does not allow the owner to lower the amount he pays, or to suspend the payment temporarily. Should you miss any payment, you may loose your coverage, so you need to make sure that you are prepared for this kind of commitment.

Certain types of whole life insurance also pay dividends. These represent the excess profit (from investment earnings, saving on expenses or favorable mortality) that the company shares with the policyholder. As they are considered an overcharge of premium, the dividends are tax free, but they are not guaranteed by the company. You can receive dividends in form of cash, they can be turned towards reducing your premium payments, or you can leave them to build up with a specified rate of interest.Whole life insurance is more complex than a term product, and it can cause the owner to lose money if he is unable to pay the premiums, and the coverage lapses early on. On the other hand, it can offer several benefits as well. It is a safe and predictable option, where you know from the start that you will be paying a level amount, without any risk of increasing premiums. As long as you keep up the payments, the beneficiaries of the policy are guaranteed to receive the death benefits, regardless of when the insured person dies. The cash value, which is tax deferred, increases over time, and in the event you decide to surrender the policy, it will be returned to you. You can also use it to secure a paid up insurance benefit if you stop making the payments. Companies offer in this case either an extended term coverage, or reduced paid-up coverage, with both options being available at many providers.

Whole life is a product for people who are interested in coverage for permanent needs, and like to know what to expect in the future withouttaking any risks with their investments. If you think this is the kind of policy you need, seek out the advice of an insurance professional whocan suggest the best solution fitting your individual circumstances. Before signing the contract, make sure that you understand all aspects of itand that you have gone through every detail of the agreement. Making an informed decision is vital when it comes to planning for the rest of your life.

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