What is Whole Life Insurance?
Whole life policies provide secure financial investments with tax savings. At the same time, it gives coverage for the insured party’s family, which means that beneficiaries will receive proceeds from the insurance claim upon death of the policy holder.
A unique quality to whole life policies is that upon purchase, the policyholder is entitled to dictate the value of the proceeds. The lump sum can be as little as a thousand US dollars up to several millions. This makes it very flexible to the insured because the individual can get a policy that he or she can realistically afford to make payments on. The rate of premiums or payments is also affected by the health condition of the insured person. Other factors that have an impact on premiums are credit scores and the face value of the insurance plan. After such calculations have been made, the premium rates stays relatively constant throughout the duration of the policy given that the policy holder does not make any major changes to the plan. A portion of the premium payments will be invested by the insurance carrier for the policy owner. If the insured party decides to cancel the insurance policy, that individual still retains the invested amount together with the value of the interest growth.
Compared to other insurance plans, whole life policies are quite expensive. It’s wise to purchase only if a person could afford a decent amount for the face value. Premiums come cheaper when you apply for it at a younger age and when you are relatively healthy. Some elderly citizens use whole life policies as estate planning tools. They feel more secure with the knowledge that coverage does not expire in these types of plans. If your family has a history of known health conditions, consider applying for whole life insurance at a young age because of the risk of being declined by insurance carriers in the future.
Several types are available for these insurance policies. The traditional policy guarantees death benefits and cash value that grows with interest over time. Ask the insurance broker or agent to compute the policy worth in the future.
Variable policies allow the policy holder to allocate money in other investment options. However, the disadvantage is that the future value of the plan is unknown given that there is no specific rate of return. Also, the insured party shoulders the risk of losing money.
Single payment policies are often used for the purpose of estate planning. Life insurance payouts are exempted from tax. These types of insurance policies are often used to avoid payment of estate taxes and the process can be quite lengthy for documentation and approval. Sometimes, a single payment, which is almost the same value as the policy, is made when policyholders can afford to do so.
In order to be reassured of your investment, choose an insurance carrier that has excellent ratings from independent companies that conduct studies on financial institutions. Steer clear from corporations that have less financial strength compared to others despite the tempting offers!