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Whole Life Insurance FAQ

By Compuquotes Team on April 23rd, 2008

Here are some simple answers to the most frequently asked questions about whole life insurance.

1. When should I buy a whole life insurance policy?

Whole life insurance is the policy of choice if you're considering purchasing life insurance for long term goals. Whole life offers a built-in savings element, because it allows you to build cash value for your premiums, and can be used as part of your estate planning. You should consider buying whole life when you are looking for insurance that you'll keep for your entire life.

2. Is whole life insurance more expensive than term life insurance?

You'll pay higher premiums for whole life insurance initially, but if you're planning on keeping your life insurance throughout your life, you'll end up paying less overall for whole life insurance than you would if you keep renewing your term life policy as you age.

3. What's the difference between term and whole life insurance?

The biggest difference between term life and whole life insurance is the length of time that you're insured. Whole life insurance will provide coverage for your entire life, as long as you pay the premiums and don't surrender the policy. Term life is only meant to cover you for a fixed period that is stated in the policy. If you want to be covered for longer, then you'll have to renew your policy.

4. What are the main types of traditional whole life policies?

The main types of whole life policies are non-participating and participating. A non-participating policy has a level premium and fixed face amount for your entire life. It offers the advantage of fixed costs, so that you can budget, and relatively low premium payments. It does not pay dividends. A participating whole life policy pays dividends that result from favorable investments. Dividends can be paid in cash or used to reduce your premium payments. It can also be used to buy additional insurance to increase the face amount of the policy.

Within the two broad types of insurance, there are many types of whole life plans from which to choose.

5. What's the difference between 'cash value' and the face amount of a whole life policy?

The face amount of your policy is the amount of the benefit that will be paid out to your beneficiaries in the event of your death. The cash value is the value that builds up in your policy as you pay premiums. If you surrender your policy, you'll get the cash value of your policy back. If you die while still covered, your beneficiaries will receive the face value.

6. Can I borrow against a whole life policy?

Generally, yes, the owner of the policy may borrow money against its cash value, if there is sufficient cash value in the policy to secure the loan. The exact details will be described in the policy documents.

7. Can I surrender a whole life policy for its cash value?

Again, the answer is generally yes, depending on specific circumstances. The exact amount will be determined by the current cash value less any outstanding loans or unpaid premiums.

8. Will I be paying insurance premiums for the rest of my life with a whole life policy?

Traditional whole life policies require payment of premiums throughout your life, but there are other types of whole life insurance policies that may be paid in full sooner. There are some life insurance products that can be purchased with a one-time payment, or with a fixed period of premiums to pay off the entire policy. Those policies will require higher premiums, but free your income in your later years.

9. What about taxes on dividends, loans, benefits and other income derived from insurance policies?

Because whole life insurance is considered an investment vehicle, you'll generally only pay taxes on the dividend amount that is greater than the premiums that you pay. The same holds true for cash value if you surrender your policy for cash value. A tax advisor can explain the particulars of how benefits, dividends and other income from your insurance policy is taxed.

10. What are the greatest cons of whole life policies?

The biggest cons of whole life polices are that whole life insurance is more complex and more difficult to understand, and that the premiums are higher than term life insurance. Use CompuQuotes.com to compare life insurance quotes for both term and whole life insurance.

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