Whole Life Insurance - Things You Need To Know By Donald Lusan
It is unfortunate that when you get a whole life insurance quote online much of the important details are omitted. The average person knows little or nothing about this policy. If people had more information they could make a more informed decision on what they are about to purchase. I am one of those who tout whole life insurance with no apology, as this policy has it’s place in the insurance portfolio of many people. This policy fits some needs that term life insurance simply cannot fulfill.
Permanent Life Insurance
Whole life insurance can be described as permanent life insurance. This suggests that you can keep this policy for as long as you choose, even if it is to age 100. A term life policy simply cannot guarantee that.
Cash Values
Whole life insurance have what is called “guaranteed cash values”. Some people like this idea because they may choose to use these values as a sort of saving to assist with the college costs or even for a supplemental retirement fund.
Whole Life Insurance Dividends
All whole life policies are not the same. Some life insurance companies have a great history of paying dividends to their policy owners on a very regular basis. This does not say that they always will be in a position to pay a dividend. Dividends are not guaranteed. There are some life insurance companies that do not perform very well.
If a life insurance company is generally successful with their investments and do a good job at keeping expenses down they usually can pay a dividend.
There are several options that you can choose from but most people have a tendency to apply their dividends to the purchase of “paid up additions”. These are little single premium whole life insurance policies.
The other available dividend options areas follows. You can leave your dividends to accumulate interest or you can use them to reduce premiums. You can also take them in cash each year.
Why Cash Values And Dividends Are Important
If at some time in the future you should need to put your hands on some emergency cash and that money is available through your cash values plus dividends you may take a percentage of this in the form of a policy loan. Even though you decide how you repay this loan you need to keep in mind that there is interest charged on this loan. In addition the death benefit of your policy is reduced by the amount owed and any unpaid accumulated interest. Another thing to note is that if you have an outstanding loan on your whole life insurance policy the amount of dividend paid will also be affected.
Nonforfeiture Values
Another important consideration when buying whole life insurance policies are nonforfeiture values. These options allow you to protect yourself from loss in the event you are unable to continue premium payments.
Automatic Premium Loans
With most whole life insurance policies if a premium payment is missed the automatic premium loan is timely activated to prevent the policy from going into a state of lapse. In other words, you do not lose your insurance as long as there is sufficient cash value to keep it in force. Interest is charged on this amount just like any other premium loan.
Extended Term Insurance
Instead of using an automatic premium loan to keep your whole life insurance policy in force you may choose to use what is called Extended Term Insurance to keep the policy in force. This is a Term Life Insurance policy for as many years as the cash value of the policy will purchase. If you should die during this period the full face amount of the policy will be paid to your chosen beneficiary. The only disadvantage is that with this option your cash values plus any dividend earned will dissipate over time.
Reduced Paid Up Policy
Another option you have if you are unable to pay the premiums for your policy is to elect to keep a reduced amount of life insurance in force rather than the full amount you initially purchased. This policy, though for a reduced amount, will be fully paid up and you will never pay a premium again. The reduced death benefit will be paid upon the death of the insured.
Cash Surrender Value
You may also surrender your policy for its cash value plus any dividends as another option. If there is any outstanding indebtedness on the policy it will be deducted from the amount you receive.
Waiver Of Premium Rider
When purchasing your whole life insurance policy you have the option of adding the “waiver of premium rider” an a very minimal cost. You may find it beneficial as if you should become disabled the life insurance company will waive your premiums for as long as you are disabled even if it is for the rest of your life. You must, however, be disabled for a minimal period of time, usually six months. Whenever you are able to return to your job you continue payments of your policy. Nothing is owed for the period you didn’t pay.
Accidental Death Benefit
Another valuable rider you can add to your whole life insurance policy is the “accidental death benefit rider”. If you should die in an accident the life insurance company will pay twice the face amount to your beneficiaries. Some life insurance companies allow you to purchase an additional unit of the accidental death benefit rider. In other words, your family would receive three times the face amount of your whole life insurance policy if you died in an accident.
Whole life insurance premiums are higher than term life insurance premiums. If you feel the abovementioned benefits are worth the additional cost this type of life insurance may be for you.
