What exactly is whole life insurance? Whole life insurance is a type of life insurance that remains in effect for the life of the policy holder. His or her entire life, that is! Premiums usually need to be paid every year into these policies. This type of life insurance was developed out of policy holder fear. Policy holders were afraid that under the conditions of a term life insurance policy, they could be paying 10-30 years worth of premiums and out live the policy itself. This would leave them with absolutely nothing to show for the many years they put into their policy and they wouldn't even be eligible for a refund.
So, in order to remedy this, whole life insurance was created. The insurance policy keeps their subscribers protected throughout their entire life as long as the premiums are paid. The premiums for this type of insurance are higher than normal and are also higher than term life insurance policies with the same award amount. The added protection of being protected for an entire lifetime significantly increased the chances of the insurance company having to pay the award amounts. Thusly, the premiums paid had to be increased as well.
Types of Whole Life Insurance
There are several types of whole life insurance policies. Six, according to the official records of New York State:
Non-participating
This means that the policy itself is non-participating. In other words, it means the policy amounts, terms and conditions can't be changed after they are put into effect. You simply pay the premiums according to the payment schedule outlined in the policy and then if all premiums continue to be paid, coverage is active until the day you die. Simply put, pay the premiums and the coverage remains active. Non-participating means that the insurance policy works for you and doesn't "participate" in paying the company any dividends!
Participating
This type of insurance policy features higher premiums than non participating life insurance policies. However, because of the higher premium, the insurance company pays the excess payments back to the participant of the insurance policy in the form of returns. In effect, you are participating in the company’s earnings. The dividend is determined after all fees have been taken out of the premium payment for various processes. These dividends can be used in a number of ways. They can accrue interest with the insurance company just like a bank account, they can be received as cash or they can be used to purchase further additions to the life insurance policy.
Indeterminate Premium
This type of life insurance is just like non-participating life insurance policies, except for a few small differences. The premium amount paid may vary from year to year, depending on various circumstances that relate to the company itself. However, the premium is guaranteed to never go above the maximum premium amount set out in the policy conditions.
Limited Pay
This type of life insurance is more similar to a participating life insurance policy except for some major differences. The premiums paid on these policies only need to occur for a certain number of years. For example, 20 years! After the policy is fully paid up, the life insurance still continues for the life of the participant and never expires until the insured person is dead. These policies tend to cost more money for premiums up front, because insuring the person for the remainder of the policy, without any premium payments, becomes costly to the company.
Single Premium
This type of life insurance is very similar to limited pay but instead of smaller payment over the course of a few years, the entire policy coverage is made in one large payment. There is a fee attached to cashing this policy in early during the starting years of the policy.
Interest Sensitive
This type of life insurance is a newcomer to the area of insurance coverage. It's like a combination of whole life and universal life, as it has similarities to both. Interest on the policies cash value vary according to the changes in market conditions. As with all other whole life insurance, the benefit remains true for the life of the insured. And, similar to universal life insurance, the premium can't go above the set amount in the insurance contract.
Those are the six types of whole life insurance you can acquire. Which one you choose should be based on your individual situation and what you are looking for in a whole life insurance policy to begin with.
Who Should Consider Buying A Whole Life Insurance Policy?
People in good health, with minimal to no health problems are good candidates for this type of insurance. However, the premium amounts for this type of insurance will be higher than term life insurance because it is guaranteed for the entire life of the policy holder. Having to continue renewing a term life insurance plan would be costlier still, considering the premium amount will go up as soon as you begin experiencing ill health.
Can You Cash in a Whole Life Insurance Policy for the Cash Value?
When it comes to most whole life policies, the answer is yes. However, the amount that can actually be acquired depends on whether or not there is any outstanding debt to the company, such as outstanding loans or unpaid premiums.
So you can see, if you have the money to spend on this type of insurance, it is some of the most secure coverage you can receive. You are guaranteed for your "whole life", meaning that even if you experience periods of ill health later in life, the premium won't change based on your circumstances. This is a great way to secure your future and ensure that you have enough money to pay for the costlier things later in life. The great majority of people who pay their premiums on time and successfully participate throughout the terms and conditions of the plan, enjoy an award to a beneficiary that is very lucrative. However, this type of insurance has the highest premiums in the industry, due to the fail safe mechanism of "forever" coverage.