Whole Life Insurance
Whole life insurance is one type of life insurance which covers one for his or her life. It basically requires a medical exam at the very start of the policy. Moreover, as the individual contributes to the premiums, they obtain cash value, that can be classified as assets for the purpose of obtaining a loan or purchasing a home.
Generally, there are three kinds of whole life insurance. These are: interest-sensitive, single premium and traditional. In many cases, unless one decides to change it, all kinds have unchanging death and premium benefits. Depending on what kind of whole life insurance availed, the cash value of the policy varies, but then it is not considered to be an income unless it is withdrawn.
Among the three forms, single premium whole life insurance is considered to be the most expensive. An individual may need to pay the entire policy in one single big payment. Cash value may increase in this kind of whole life insurance and interest in the initial investment may be frequently received. However it is not the same with the investment interest one may receive in a 401k or the traditional IRA.
On the other hand, for those who would want to take the very least risk, a traditional whole life insurance may be a good option. This kind of whole life insurance guarantees a fixed and specific minimum cash value for an investment. It requires an individual to pay a monthly premium. In other cases, if someone has obtained a lot of cash value together with a notice, the premiums may be paid with the use of the obtained cash value. This is very useful to individuals if he or she loses a job or cannot make immediate payments for the meantime due to some other reasons. Premiums will then be paid until enough cash value is left in the policy.
Interest –sensitive whole life insurance, on the other hand, has cash value which varies on the interest rate of the changing market. It is the same with loans wherein one may hold on a credit card or a house that has varied interest rates. The cash value that is included in this kind of whole life insurance may decrease or increase depending on the interest rate, thus it is less secured compared to a traditional plan. If the present economy is doing well, the cash value will have greater return.
In most cases, whole life insurance offers tax benefits because cash value is absolutely not taxable unless used. It is also significant to remember that only a part of the premium is converted to cash value and this varies depending on the plan offered. However, of one contributes to an IRA or a 401k, he or she is not taxed at all until withdrawal but he or she has all the amount of money which he or she contributed.
Several financial experts suggest that whole life insurance is far the best for those people who want minimal risk and do not like much in converting assets to investment. However, they also feel that the whole life insurance won’t be able to provide good return to secure retirement.