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Life Insurance
Whole
Life Insurance
Whole life insurance, also known as “cash-value”
insurance is a basic and consistent type of permanent life insurance
which remains in effect your entire life at a level premium. This life
insurance is a good choice got you if you do not expect your life
insurance needs to diminish over time. A portion of your premium goes
into a reserve fund called ‘cash value’ that builds
up over the years your policy is in affect. Your reserve fund is
tax-deferred and you can borrow against it, until you withdraw it.
The
premiums must generally remain constant over the life of the policy and
must be paid periodically according to the amount indicated in the
policy. You may also have the option of a single premium ----- paying
all of the premiums at once with a single lump sum. Your cash values
will grow to equal the amount of the death benefit when you turn to age
100.
Although, whole life insurance is very expensive, and if you're on a
limited budget, you may not be able to afford all the insurance
coverage you actually need. But the plus point is that the death
benefit is guaranteed as long as premiums are met. Also death benefit
will never decrease if you don't borrow against it.
Whole life
insurance policy's returns will fluctuate with the markets and will
usually follow returns available from other investments like equity
mutual funds. However, if you decide to quit your policy, your cash
value can be paid in cash or paid-up insurance.
Whole life insurance is
most suitable for you, if you want to:
- use it as a tax and estate planning vehicle,
- accumulate cash value for a child's education
or retirement,
- pay final
expenses,
- provide money for a favorite charity,
- fund a business
buy/sell agreement,
- provide key person protection.
Before buying the
whole life insurance, you need to think carefully about choosing your
level of coverage. Too often people make the mistake of insufficiently
covering or even worse, financially overextending themselves. This
would be a tragic error with whole life insurance policy because
defaulting on premium payments can mean policy cancellation and the
loss of your entire investment. So be careful and make sure you:
- pick a
life insurance policy that has a guaranteed cash value starting at the
very first year,
- choose the one with the highest cash value in
the very first year,
- consider "participating" insurance policies
which can pay dividends,
increasing your policy's value by boosting both the total cash value
and the death benefits,
- beware of any insurance policy that levies
"surrender charges" when you
cancel.
- if you ever need to stop paying premiums, your
policy lets you use the
accumulated cash value of the life insurance policy to pay the
premiums, thus keeping your coverage current.
Of course there
are other types of
life insurance including term and universal. Which one you choose is a
matter of cost benefit to you and can depend upon your age and
situation in life.
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