Whole Life Insurance Policies

There are different kinds of insurance policies geared to answer the variegated needs and demands of individuals. Whole life insurance is a guaranteed life long protection. It is also called straight life insurance or permanent life insurance.

Whole life insurance policies and their premiums are initially much more expensive than term life policies. Initial premiums are greater than the actual value of the insurance. This substantially high premium enables a whole life insurance policy to have a cash value as well as be an investment opportunity. The growing cash value is tax-free and the dividends can be borrowed against, and are used to level the premium value in later years.

The cost of the premium actually becomes low with the growing mortality risk of the insured. The cash value enables the insurance company to afford life-long coverage which would not be otherwise feasible with increasing inflation each year. Thus, whole life insurance policies have an added cash value and investment opportunity apart from the protection features.

Since there is no fixed term or duration, the policy is never out of force as long as the premiums are paid. In case of cancellation, the cash value is surrendered. Loans against the cash value are not taxable, provided the policy is a qualified one. There is a specific customer-friendly logic behind the initial high premiums and the lower later premiums. As the insured advances in age he/she may become inept at paying high premiums.

Due to its cash surrender value, whole life insurance is the most popular life insurance option. However, the initial high price and expensive premium is often a deterrent for price-conscious customers. There are many variations of whole life insurance policies. Universal life insurance policies offer great flexibility to the insured to choose the kind of premium payment and death benefits they want.

Variable life insurance provides the alternative to utilize the cash value in direct investments like stocks, and in effect raise the amount of potential return. Variable universal provides an amalgamation of the flexibility of universal policies and investment options of variable policies. Survivorship is a form of joint life insurance policy which is generally favored by affluent couples, or when one person is in critical health. Single-purchase life insurance policies provide complete ownership of the policy to individuals paying a one-time premium.

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The Pros and Cons of a Term Life Insurance Policy

A term life insurance policy is an insurance plan that provides life cover to a person only during the decided term period. The premium for the entire period is fixed and arrived at before the term life insurance policy and the cover commence. The cover dissolves if the person survives the term. The term for a term insurance plan varies from anywhere between 5 years to 30 years. Being a conventional plan, this policy is most suited to meet the needs of people who do not have sufficient resources to go in for a whole life insurance plan which demands larger premiums. This policies are also an easy option to protect one’s family for a particular term, until a sufficient corpus can be arranged, that would take care of the beneficiaries in case of death of the insured.

No market investments are made for the insured and hence no returns are given on this policy. It is purely a life cover plan. However, the money saved on premiums in this policy can also be used by individuals to make investments of their own choice. Individuals may also choose to go in with this policy to protect their family until say, their retirement, by which time they presume they will have built their own corpus to support their family post retirement.

Because the premiums are used only as a cover and there are no funds built that act as cushions, the policy lapses if premiums are not paid within the grace period. Primarily, premiums in a term policy are calculated based on the probability of the insured dying in the term period. However, because the premium remains constant throughout the term, the longer the term the higher is the premium. This is because the death probability is low during the initial years and increases during the later years of the term. The premium fixed in a term insurance policy is averaged over the years.

The premium in a term policy is cheaper as compared to a whole life insurance policy because the chance of the insurance company paying a death claim is lesser in a term insurance policy. However, in a whole life insurance policy, the company eventually ends up paying out a death claim.

Another kind of term insurance policy is an annual policy where the company guarantees re-insurability for a given term, but the premium keeps increasing every year. As in any other insurance plan, a medical check-up is usually mandatory for the person to be insured, especially if the age of the person is on the higher side. On the whole, however, a term policy is always a cheaper option for people who wish to seek a life cover and decide their own investment plans.

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