When purchasing life insurance coverage, there are several factors that it is important to keep in mind. For example, the proper amount of coverage is essential in ensuring that loved ones and survivors will be able to pay off final expenses, estate taxes, or other debts that they are in need of the life insurance proceeds for.
Just as important as the right amount of life insurance coverage is having the right type of insurance protection. This is because there are many different kinds of life insurance to choose from – and each may work a little differently, as well as provide various different features for the policyholder.
Types of Life Insurance Coverage
There are a variety of different life insurance coverages to choose from in the marketplace today. But overall, there are two primary forms. These are the term and permanent. With term life insurance, an only pure death benefit is provided. There is no cash value or investment component that is included with this type of coverage – and because of that, term life insurance is typically the most economical form of life insurance that there is. This is especially the case for those who are young and in good health at the time of application.
While term life insurance can be inexpensive, this type of coverage also comes with an expiration date. These policies are sold for certain time frames or terms. For instance, a term life insurance policy may be 5 years, 10 years, 15 years, 20 years, or 30 years – after which, the policy will expire and if the insured wishes to remain covered, he or she will need to re-apply for coverage at their then-current age and health condition. There are also term life plans that are annually renewable. With this type of coverage, the policy must be renewed each year – and usually the amount of the premium will rise at each renewal date.
Permanent life insurance differs from term in that it provides both death benefit protection, along with a cash value component. The cash value is allowed to grow and compound free of taxation – at least until the time it is withdrawn. This can allow the cash to increase on an exponential basis.
The policyholder can withdraw or borrow funds from the policy’s cash value for any reason that he or she chooses, such as for paying off a debt, supplementing their retirement income sources, and / or going on vacation.
The cash doesn’t even have to be repaid. However, if there is an unpaid balance in the policy’s cash value component at the time of the insured’s death, then this amount will be subtracted from the amount of the death benefit that is paid out to the beneficiary at that time.
Whole Life Insurance Policies
There are many different types of permanent life insurance policies. The most basic of all of these is whole life insurance. These plans, as their name implies, are intended to remain in force throughout the remainder, or the “whole,” of the insured’s lifetime – or until the policy pays out. This usually occurs when the insured reaches the age of 100.
There are several reasons why a whole life insurance policy may be attractive to a policyholder. One reason is that the premium on these plans will typically remain constant for the entire life of the plan. And, although this is usually higher at the onset of the policy than a corresponding term life insurance policy, as the insured gets older, the premium continues to stay the same – even if the insured’s health deteriorates, and he or she becomes uninsurable.
Variations of Whole Life Insurance Policies
There are numerous different types and variations of whole life insurance that are available today in the market. These can include what are referred to as either par and non-par policies. A par, or participating, policy is one that shares in the excess profits of the life insurance company. This is typically done by providing the policyholder with dividends. These dividends are usually not taxed because they are considered to be a return of a portion of the premium. Therefore, this can provide yet another tax advantage for the whole life insurance policyholder.
Non-par, or non-participating, life insurance policies do not receive dividends. With these types of policies, the insurer assumes all risk of future performance, meaning that if the cost of future claims is underestimated by the insurance company, then the insurer will need to make up for the difference. However, if the cost of the future claims have been overestimated, then the insurer can keep the difference.
Benefits of Owning Whole Life Insurance
There can be numerous benefits to owning a whole life insurance policy. These can include the fact that the premium remains locked in throughout the entire life of the policy. This can be a real advantage – especially for those who are on a budget and may have difficulty with rising prices.
These policies will also offer a minimum death benefit. Since those who have a whole life insurance policy will never need to re-qualify for their coverage (provided that they keep their coverage in force by paying the premium), then they can always count on having a set amount of death benefit available to their beneficiary.
Another nice advantage is the steady amount of cash value that can be built up over time – with a gain that is tax deferred. Even if the policyholder does opt to surrender or cancel the policy, he or she will be able to obtain the cash that has been building up in the policy over time.
Premium Options on Whole Life Insurance Policies
Just as there are different types of permanent life insurance policies, there are further differences in whole life insurance plans. These are often broken down by the way in which these policies have their premiums paid.
Just some of the ways in which a whole life insurance policy’s premium may be paid include the following:
- Level Whole Life / Straight Life – Most of the whole life insurance policies that are in force today use the straight life method of premium payment. This refers to regular premium payments that are made – and that will continue – until the insured reaches the age of 100, or passes away, whichever occurs first. A straight life policy can also be referred to as either a pure life or a continuous whole life policy.
- Limited Pay Whole Life – With a limited pay whole life insurance policy, the policyholder can pay for the entire policy over a set time period. As an example, if an individual owns a 10-pay policy, then the policy’s premiums would be set up such that the entire policy would be completely paid off after ten years. After that time period, the policyholder would not owe any more premiums. These types of policies are designed for those who wish to have permanent life insurance protection of whole life, yet do not want to pay a premium for the remainder of their lives. Also, these plans will typically also have a higher amount of cash value in them. This is because each of the premium payments that are made is more than the amount of the premium payments on a straight life policy. Therefore, the cash value component of a limited pay whole life insurance policy will also generally accumulate more quickly than a straight life policy will. However, a limited pay policy will still payout when the insured turns age 100.
- Single Premium Whole Life – With a single premium whole life insurance policy, the entire policy will be completely paid off with the payment of just one single premium payment. Due to the large amount of money that is deposited with this one lump sum premium, a single premium whole life insurance policy will usually begin with a significant amount of cash value right from the start. Also, because the premium is all being paid up front with a single premium policy, these types of policies are usually purchased at a substantial discount as compared to the total amount of premium that is paid in throughout the lifetime of a straight life whole life insurance policy.
- Modified Whole Life – A modified whole life insurance policy will require the policyholder to pay his or her premium throughout the entire life of the policy. There will be, however, a premium discount in the early years. Then, there will be an increase in the premium a few years later. These policies are often purchased by those who wish to have a permanent life insurance policy, however, may initially have a hard time paying the premiums in the beginning.
- Graded Premium Whole Life – With a graded premium life insurance policy, there will also be a premium discount at the beginning of the policy’s life, however, afterwards, there will usually be several premium increases going forward. With these policies, then, the premiums will typically level out higher than that of a straight life policy.
- Indeterminate Premium Whole Life – An indeterminate premium whole life insurance policy works on a dual premium concept in that it will include a maximum premium along with a type of discount that can also reduce the policy’s premium. Therefore, the actual premium that the policyholder will pay is never more than the maximum premium stated in the policy’s contract. An indeterminate premium whole life insurance policy will also endow when the insured reaches the age of 100.
- Indexed Premium Whole Life – An indexed premium whole life policy will allow the face amount of the policy to rise and fall based upon the movements of an underlying market index, provided that the policyholder chooses to accept the increase. It is important to note that the increase in face amount will also cause an increase in the policy’s premium. Should the policyholder not take the face amount increase, he or she may not be offered any further increases in face amount in the future.
- Current Assumption Whole Life Insurance – A current assumption whole life insurance policy is a type of policy that is a combination traditional cash value / universal life insurance policy. When initially issued, the death benefit and the premium start out fixed. These will only remain fixed for a certain period amount of time such as 3 or 5 years. Yet, the adjustment mechanisms in these plans will also allow the insurance company to continuously fine-tune the policy and keep the cash value competitive in the marketplace.
How and Where to Obtain the Best Premium Quotes for Whole Life Insurance Coverage
When seeking premium quotes for whole life insurance coverage, typically the best way to obtain the most competitive price is to work with either an agency or a company that has access to more than just one insurer. This way, you will be able to compare directly multiple policies and premium quotes and in turn determine which will work the best for you and your coverage needs.
If you are currently in the market for a whole life insurance policy, we can help. We work with many of the best life insurance carriers in the marketplace today, and we can assist you in obtaining the important details that you will need in making a well-informed purchase decision. When you are ready to move forward, just simply <Click Here Now>.
Should you have any additional questions regarding whole life insurance – or about any life insurance at all – please feel free to contact us directly. We can be reached via telephone, toll-free, by calling 877-235-9299. Our experts will help you to ensure that you are making the best coverage decision for your specific life insurance protection requirements. So, contact us today – we’re here to help.