How Whole Life Insurance Works

Whole life insurance is a basic type of permanent life insurance. What is special about it is that it stays effective your entire life at a level premium.

When to choose whole life insurance?

When you expect your life insurance needs not to reduce over the years. For example, whole life insurance is most befitting to you, if you want to use it as a tax and estate planning vehicle. Or, if you want to accumulate cash value for your child’s education, or for retirement. You may want to pay final expenses, provide money for a favorite charity, and can be offering certain business benefits as well.

Whole life insurance is sometimes called ‘cash value insurance’. This is because part of your premium goes into a reserve fund called ‘cash value’. This ‘cash value’ builds up over the years your policy is in affect, and will grow to equal the amount of the death benefit when you turn to age 100.

Other nice features of this type of insurance include that your reserve fund is tax-deferred. And, you can borrow against it, until you withdraw it. If you decide to quit your policy, your cash value can be paid in cash, or paid-up insurance. The death benefit is guaranteed as long as premiums are met. And, the death benefit will never decrease, if you do not borrow against it.

Typically, the premiums remain constant over the life of the policy. They should be paid periodically as per your insurance contract. Some whole life insurance give you the option to pay a one-time single premium, which would be covering all of the premiums at once with a single lump sum.

What are some of the drawbacks of whole life insurance

?

Whole life insurance may be more expensive than you can afford. Your budget may prohibit for you to obtain the insurance coverage you actually need. The returns of whole life insurance policies will fluctuate with financial markets. They usually follow returns from other investments such as equity mutual funds.

Deciding on Whole Life Insurance

When you are contemplating taking out a whole life insurance coverage, you need to evaluate what level of coverage is wanted and what is affordable. Every insurance agent will always want to sell you more than less, however it is actually far better to make the mistake of insufficient coverage then to make the mistake of over extending yourself financially. This is because defaulting on premium payments on your whole life insurance policy can mean policy cancellation and the loss of your entire investment!!

Whole Life Insurance Purchasing Tips

1. When evaluating various whole life insurance policies from various insurers, as we have spelled out on this blog that you should do, choose a life insurance policy that has a guaranteed cash value starting at the very first year.
2. Actually, choose the one with the highest cash value in the very first year
3. Consider participating insurance policies which can pay dividends. Dividends increase the value of your policy by boosting both the total cash value and the death benefits. Note: be beware of insurance policies that levies ‘surrender charges’ when you cancel.
4. Ensure, that 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.

© copyright 2009 Vera Lang, Be Safe, Insure http://www.BeSafeInsure.com