Introduction to the whole life insurance – a lasting guarantee for the future
This is a kind of insurance that represents the possibility of protection for the rest of one’s life under a condition that the premiums are being paid regularly and under the agreed terms. If that condition is fulfilled, the policy remains active. When comparing this form of insurance to the term life insurance, we can see that premiums of the latter can be lower at the beginning of the procedure and then increase in the process of renewals. With whole life insurance however, the cumulative value of the premiums is more or less equal providing that the policies are kept until the average life expectancy.
If you choose whole life insurance you will be able to actually use policy loans which come as income tax free. These can be used until the insured person is alive and if there are any unreturned loans after death of the insured, the insurance company will simply subtract the loan from the benefit and pay the sum which remains.
Having that in mind, it can be said that whole life insurance represents a variation of a savings account with the integrated insurance component. The best part that this type of insurance has to offer is that you can count on guaranteed death benefits and cash values, fixed annual premiums and mortality and expense charges that cannot decrease the cash policy value.
On the other hand, some of the factors that can be viewed as disadvantages are the fact that the premiums are not flexible and the internal fee of return is not as economical as with other saving options. Also, as a part of the savings aspect, the insurance company can invest a part of your money, but you cannot choose the investment accounts. The interest that your money earns through these investments is added to the savings segment of the policy which is how cash value is being built. You are also given the opportunity to earn dividends which represent the company’s successful operating experience.
If you would like to raise the benefit, you are allowed to do that by paying an additional premium and that is called paid-up additions rider.
Other way to increase the death benefits is to use policy dividends but they are not guaranteed and their rate does not need to match the historical rates. You can also decide on the “reduced premiums” which actually reduces the premiums you are yet to pay by the non guaranteed dividends amount. Alternatively, you can take the dividends as they are paid out (if that option is offered by the company) or invest them in the account of the insurance company. This actually gives you the opportunity to manipulate your money and invest it together with the insurer.