Whole Life Insurance
Whole life insurance is the oldest form of life insurance policy available today. It is exactly what the name implies-it is insurance that lasts your whole life. In most cases premiums are paid throughout the length of the policy (typically to age 100 or to 121), although policies with shorter pay periods are available. Like other types of policies, it will pay the death benefit to your beneficiaries upon your death.
Whole life insurance offers the most significant guarantees of rates and values than any other life insurance policy. Due to these guarantees, whole life presents a very good option for those who have needs for permanent insurance.
The three guaranteed rates of a whole life policy are:
- Cost of Insurance (also known as mortality rate) - unlike a universal life insurance policy, this rate is guaranteed and will never increase.
- Interest Rate - also unlike a universal life policy, the interest rate is guaranteed and will never change.
- Expenses - the allocation for administration expenses is also guaranteed and never increase (also unlike a universal life policy).
The three guaranteed values of a whole life policy are:
- Guaranteed Premium - the premiums are guaranteed to remain level for the insured person's life. The premiums are higher than term policies in the early years of the policy. However, because whole life premiums remain level throughout the insured's life, they are typically less expensive than term premiums in the later years.
- Guaranteed Death Benefit - the death benefit will never be reduced (except if it is withdrawn or borrowed from the policy).
- Guaranteed Cash Value - whole life policies build cash values, which is guaranteed in the policy and the growth is tax-deferred under current federal income tax law.
In addition to the guaranteed cash values, participating whole life insurance policies' cash value can also include the values of dividends paid to policyholders. Dividends can be paid to policyholders in cash, but the option most chosen is to allow the dividends to accumulate with interest, which can greatly increase the growth of the policy's cash value. They can also be used to purchase additional death benefit. When looking for a whole life policy from a Mutual Insurance company, look for a solid history of paying dividends.
Whole life policies, like other types of life insurance has income tax-free benefits. Additional tax benefits include tax-deferred buildup of cash value and access to policy values on a tax-favored basis.
Because of tax-deferred growth, tax-favored access to policy cash values and protection of cash-value from creditors, many financial professionals view whole life insurance (in addition to life insurance protection, as another asset class to add to their clients portfolios.
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