Whole Life Insurance
From LoveToKnow Insurance
Whole life insurance policies combine a term life insurance policy with an investment component. This type of policy allows you to build cash over time. Before obtaining a policy, you should learn as much as you can about the plan and how it works.
Whole Life Insurance Basics
Whole life insurance offers permanent life insurance coverage as long as you continue to make premium payments. This type of policy is similar to term life insurance, with one major difference—whole life insurance allows you to build cash via investments. The investments may be in bonds, money market instruments, or stocks. As the policy builds cash value, you can borrow against it. The amount of cash that is accumulated depends on the type of policy that you have, its size, and the length of time you have had it. Another key component, the rate of return on your investment, is also a major factor.
Types of Whole Life Policies
When shopping for whole life insurance, you will find that there are several different variations to choose from. The three most common are:
- Traditional Whole Life: This type of coverage provides a guaranteed minimum rate of return on the cash value portion of your policy.
- Variable or Interest-Sensitive: With this coverage, you receive a variable rate on the cash portion of the policy. Variable plans work much like an adjustable rate mortgage. Depending on the economy and the rate of return, you may be able to increase your death benefit without raising your premiums.
- Single-Premium Whole Life: This coverage is best for someone who has a large sum of money, because it allows you to purchase a whole life policy up front without any premiums. Just like other whole life options, single-premium coverage offers cash returns.
Advantages and Disadvantages
There are many different advantages to choosing a whole life policy over other types of life insurance. Typically, your premium remains constant, and unless you make changes to the policy, you will have lifelong, permanent coverage without being subjected to periodic medical exams. And, unlike term life insurance, this type of coverage allows you to accrue additional money based on your investments. These investments may come in handy later in life if you need to borrow against your policy.
Some disadvantages of whole life insurance policies include a low to moderate investment return and high fees and commissions. Borrowing against your policy may also lower the total payout that is given to your beneficiaries. Before purchasing a whole life insurance policy, it is a good idea to contact an expert to determine what the average rate of investment may be. The policies are often more expensive than term life insurance policies. If you plan to spend the extra, you need to make sure that it is worth the investment.
Whole life policies are generally more expensive than term life. So, if you need coverage with the lowest possible payments, whole life may not always be your best choice.
Obtaining Whole Life Insurance
There are many different insurance companies that offer whole life insurance policies. Before settling on one plan, it is very important to shop around for the best deal. The financial soundness of the insurer is also a critical concern, especially if you plan to have the policy for more than 20 years. You will want to make sure the company will be around long after you are gone. To get information on a specific company’s credit worthiness, visit Insure.com. This website offers comprehensive reports on individual insurers.
You can also contact insurance companies directly to ask about their ratings. Here is a list of established companies that offer whole life insurance policies.
- Aetna
- Allstate
- Gerber Life
- Guardian Life
- Metlife
- Nationwide
- State Farm
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This page has been accessed 3,983 times. This page was last modified 00:23, 12 October 2007.
© 2006-2009 LoveToKnow Corp.
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