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Whole Life Insurance and the Benefits of Cash Value

By Jay Maxwell on January 3rd, 2010

Whole life insurance, or permanent life insurance, is a complex insurance product because it also has an investment aspect. The policy works by building cash value through a portion of the premium not needed to pay for the cost of the death benefit. The surplus premium amount builds with interest within the policy, and as the cash value increases you can borrow against it or, for a penalty, surrender the policy early.

Many people buy life insurance, particularly this type, for use as a college fund or as a financial safety net that can be borrowed against in an emergency. Many life insurance agents refer to whole life policies as savings or retirement plans. While these functions are legitimate, you should always look at your entire financial situation and weigh all of your investment options. That way you can determine the best insurance policy for your goals, and make the best use of your money.

Types of Whole Life Insurance Policies:

There are a couple of insurance policies that fall within the whole life insurance category:

  • Non-participating whole life insurance: A permanent policy with no investment return; lower level life insurance premiums than whole life insurance policies that include an investment component
  • Participating whole life policies: These policies can pay dividends to you directly, or they can be used to lower your premium payment or to increase the face amount of your coverage

Whole life insurance quotes quickly tell you that this product is more expensive than a term insurance policy. This is because a whole life insurance policy is often dual purpose and is designed to last throughout the life of the insured. It is best to plan on having this type of insurance policy for 20 years or more.

Conversely, term life insurance, which is the cheapest life insurance available, covers you for a specific time period. Term life policies do not offer a cash value or a savings element; furthermore, if you live beyond the policy time frame there is no payable death benefit. To compare whole life insurance rates visit www.compuquotes.com

Different Ways of Paying for Whole Life Policies:

There are a variety of premium choices for your whole life insurance policy:

  • Level premium: The premium remains level throughout the life of the policy or as long as the insured is living
  • Single premium: One relatively large premium paid at policy issuance; which results in an immediate cash value and loan value
  • Indeterminate premium: Premiums are adjustable throughout the course of the policy based on expenses, mortality rates, and investment earnings. Premiums may never exceed the guaranteed maximum rate

Policy Riders to Consider:

In addition to the death benefit and cash value of your whole life insurance policy, additional provisions called riders, can provide an added benefit to your policy. Riders usually come with an increase in the premium amount:

  • Accelerated death or living benefit: A large portion of the policy paid prior to death, upon diagnosis of a terminal illness
  • Critical illness benefit: An amount paid upon diagnosis of a defined critical illness, such as cancer or heart attack
  • Accidental death benefit: Usually doubles the death benefit if death results from an accident
  • Waiver of premium: Waives the premium but keeps the policy current if the policy holder becomes disabled
  • Waivers: Excludes payout of death benefit due to deaths resulting from hazardous hobbies, acts of war, etc.

Life insurance is complex. There are many considerations you should make when deciding what might be the best policy for you. Thorough research by a trusted source is crucial. You should review several whole life insurance quotes, and be advised on the performance of each policy, how it works, and what you can expect.

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