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The Fundamentals of Whole Life Insurance

The Fundamentals of Whole Life Insurance

The Fundamentals of Whole Life Insurance


If you want to purchase life insurance you need to know two things: how much protection you need, and what type of policy to buy.

Once you figure out your short term, long term obligations and your budget, it will be easy for you to select the right insurance policy. The two basic types of insurance are term insurance and whole life insurance. Term insurance will protect you for a specific term, such as 10, 15, 20 or 30 years. Term insurance premiums increase unless you buy a level term policy, which fixes your premium at the same rate for the whole term. If you outlive your policy term then you will have to buy a new policy to keep you covered. Term life insurance policies are generally cheaper than whole life insurance policies.

Whole life policies are also called as permanent life insurance policies as it covers you till your death. But you will have to keep paying your premiums. Policies are expensive as they have a built-in investment component that builds cash value over time.

This is the crucial element that differentiates a whole life policy from a term life policy. The contract allows you take advantage of the cash value of the policy in the future. If the policyholder dies then beneficiaries receive the death benefit. Whole life policies do two things at the same time: they protect your family and also allow you to save for your future.

The cash value of whole life policies tend to kick in after few years as administrative expenses and other charges eat up all accruals for the first few years. Whole life policies will be a good choice for you if you have someone who relies on you for long-term financial support. Term life policies are cheaper to get when you are young, so if you are worried that you will outlive the policy term or if you are already over 50 then whole life insurance is the way to go. Some people use it to help beneficiaries pay estate taxes.

There is a wide variety of choice for people who are ready to buy whole life insurance. The main categories are listed below

Ordinary whole
Limited payment whole
Universal life (UL) insurance
Variable universal life (VUL) insurance
Survivorship
Participating or non-participating whole

Insurance companies offer a number of riders that can be added to your policy. Some of the widely used riders are Accidental Death Benefit Rider, Disability Income Rider, Level Terms Rider, Living Benefits Rider, Long Term Care Rider, Waiver of Premium Rider and Policy Purchase option.
Some people who want to discontinue their policy stop paying the premiums and allow the policy to lapse. It's a huge mistake to do as your policy has some cash value attached to it. So if you are planning to discontinue your current policy please inform the insurance company that you want to surrender the policy and reclaim the current cash surrender value.

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