What Are The Different Types Of Whole Life Insurance?

What Are The Different Types Of Whole Life Insurance

Whole life is a type of life insurance that lasts for the policy holder’s entire lifespan as long as the premiums are paid on time. Most insurance companies require the potential policy holder to undergo a medical exam before coverage is given. The longer the individual pays the premium, the more the cash value is built. If the premium payments are discontinued, and the policy lapses, the policy holder will lose their insurance; some plans may still allow the individual to have the cash value.

Whole life insurance can be categorized into three subtypes: traditional, interest sensitive and single premium. Usually, each type carries an unchanging death benefit and premium unless the policy holder decides to increase or decrease coverage. A policy’s cash value will depend on the subtype; however, whole life insurance is not considered income unless the individual withdraws money from the policy.

Traditional Whole Life

Traditional whole life carries the least risk. This type of whole life insurance is well-suited for those who want a fixed and specific minimum cash value in which to invest. Monthly premiums must be paid on traditional whole life insurance. However, premium payments can be taken from the policy’s cash value if the policy has accumulated a high cash value. This benefit allows the policy holder to make payments if they run into financial trouble. As long as the policy has cash value, the premiums can still be paid.

Interest-Sensitive Whole Life

Unlike the cash value of traditional whole life, the cash value of interest-sensitive whole life insurance will fluctuate according to the current market’s interest rate. In essence, interest-sensitive whole life has varying interest rates like some credit cards and home mortgages. Because of the varying interest rates, this kind of whole life insurance is considered more risky that traditional whole life insurance.

Single-Premium Whole Life

Out of all three subtypes of whole life insurance, single-premium policies are the most expensive. The holder of a single-premium policy is expected to pay the entire amount in one lump sum. Upon the initial investment, the policy will receive interest, allowing the cash value to increase immediately. Regardless, single-premium whole life policies are not comparable to investments like 401(k)s and IRAs.

No matter the type of whole life insurance, the policy holder will receive tax benefits because the actual cash value cannot be taxed until it is used. Potential policy holders need to keep in mind that only part of the premium is converted into a cash value; the amount allocated to the cash value varies depending on the plan. Financial experts conclude that whole life insurance policies are best for people who prefer less risky investments that do not involve asset conversions.

What Type Of Life Insurance Do You Need?

What Type Of Life Insurance Do You Need

Like many people, you may be confused as to the type of life insurance best suited for you. There are quite a few factors and options to consider. Financial planners recommend that a potential policy holder review their particular needs and compares features and providers. You should think about not only your current goals but also your future goals. And after you choose a policy, it is a smart idea to periodically evaluate your coverage; sometimes changes must be made to fit new life situations.

The type of life insurance you choose will depend on your lifestyle. For instance, if you are employed, have several dependents and are still upside down on your mortgage, your insurance needs will differ from someone who is retired, does not have dependents and has paid off their mortgage. In these scenarios, the younger parent should buy enough life insurance to support the children and pay the mortgage. The older retiree needs to purchase insurance to cover their end-of-life expenses.

Do not forget to plan for the future when choosing a life insurance policy. If you are currently a parent of minor children, you will need a higher level of coverage. Once your children are independent adults, you can lower the coverage amount. Some people buy whole life policies and supplement them with term life insurance that lasts until their children reach adulthood.

You have several categories of life insurance from which to choose. A term life policy generally offers a low monthly premium, particularly when purchased early in adulthood. However, a whole life policy has premiums that do not rise as the holder ages. It is also possible to earn interest on certain policies. Other policies let the holder borrow from the principle or the accrued interest.

There are additional options you can add to a life insurance policy. Terminal illness payments allow a portion of the policy to be “cashed out” in order to cover bills associated with a terminal illness. Mortgage repayment is another extra choice you have. This option automatically pays the mortgage left on your home. Accidental death coverage is also a popular choice because the payout is increased if you were to die in an accident.

When shopping for life insurance, get quotes from a few different companies. Some companies offer discounts for those who have an auto insurance or homeowner’s insurance policy through the company. Your employer may even provide term life insurance. If so, you could possibly be able to buy more coverage at a group rate.

What is Decreasing Term Life Insurance?

What is Decreasing Term Life Insurance

Decreasing Term life insurance is a policy whose benefits decrease over time. These policies are often used by people who need to ensure a large debt, such as a mortgage or childcare expenses, will be covered in the event that the insured dies. For those that have the need, there are many benefits to buying this kind of policy.

With this type of coverage, a specific dollar amount of life insurance is purchased. Over a period of time, the benefit amount will decrease to a predetermined minimum and eventually expire. This is strictly a death benefit, which is payable to a beneficiary. The premium is usually a fixed amount that is paid monthly.

The length of time that the policy is in effect, or term, can vary between 10 and 30 years. This is called Level Term life insurance. The rate is guaranteed over the course of coverage. The exception is for Annual Renewable Term policies. For these, the policy renews each year, and the premium is based on one year. There is often an option of renewal, which is guaranteed for a set number of years.

An insured can designate the money to cover their financial obligations in the event of their death. Common uses include:

  • Mortgage coverage
  • Dependant child care expenses
  • Educational expenses for dependant children
  • Personal debt
  • Funeral expenses

The downside is that while the premium remains the same, the value of the policy decreases annually. As opposed to whole life insurance coverage, a Decreasing Term policy is a temporary solution. The ideal situation in which this would be used is for there to be an adequate amount of money in savings at the expiration of the policy.

Decreasing Term life insurance is a popular choice among working class families. This is largely due to the relatively low cost. Whole Life or Universal coverage tends to be more expensive, since the benefit amount does not decrease.

However, beneficiaries do not receive the full cash value of Whole Life policies. They are only paid the face value. This increases the attractiveness of Decreasing Term policies, since the difference in premium could be invested elsewhere.

Decreasing Term life insurance is also helpful for those that expect to have accumulated a substantial savings upon their death. It protects other investments, such as an IRA, from being used to pay estate or inheritance taxes. As much as 80% of these benefits can be lost due to such expenditures.

What is Variable Universal Life Insurance?

What is Variable Universal Life Insurance

Variable Universal Life Insurance refers to a type of insurance that creates cash value. With regard to a VUL, the cash amount can likely be invested in an array of varying accounts not linked to one another. The component found in the name has to do with the ability to put away money in different accounts with differing values. The reason why the values tend to vary is because they are placed into bond markets. Premiums will vary at certain times, starting with nothing and moving all the way up to their subsequent maximums, which are setup by the IRS and its relevant insurance plan.

A permanent life insurance setup such as this one is in place so that the benefit upon death will be paid if the insured individual dies, but there has to be enough of a cash value in order to pay the entire cost that the policy requires. There is absolutely no endowment age, and so this is a major advantage of VUL over other kinds of programs. With standard whole life policies, death benefits can only reach the actual amount given in the policy, and at the age of endowment, the face amount is paid in whole. So with either endowment or death, an insurance entity will retain any value that has been created over the years.

In the case that certain investments, which have been made in different accounts, do better than the common account of the insurance company, then a higher rate-of-return will take place. Mostly, the higher rates take place with those plans that belong to the fixed rates configuration of the whole life plan. With a combination of this magnitude, which refers to the amassing death benefit, a higher value might be awarded to the beneficiary than that which typically belongs to the whole life policy.

There are regulations that belong to the VUL providers, so it makes sense to become acquainted with what some of them are. A representative that provides a VUL has to be working in regulation with the securities and laws of the country by which it operates. Because these are in fact life insurance policies, VULs can only be sold by those providers that have all of the proper licensing. In addition, it is only possible to sell insurances in the locations of which the rules apply. Lastly, the insurance company itself has to be licensed as an actual insurer—anything short of this leaves all parties involved operating outside of the context relating to the policy.