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A combination of steady high income and a need for insurance coverage whole life are the driving factors for Americans to select whole life insurance. Term and whole life insurance are the two classifications of life insurance policy. The difference between the two is primarily the time aspect. Whole life insurance is an insurance coverage for your entire life, not just for a specific period as in the case of term life insurance.
Whole life insurance policy does not expire for a lifetime, in other words it is insurance for your whole life irrespective of the fact when you pass on. And the policy is active as long as one continues to pay the premiums. Whole life insurance does have a termination date which is usually on the insured's 100th birthday. At this point, the policy will be terminated and the insured will be given the cash value which is the face amount of the policy.
Benefits of whole life insurance
Whole life insurance is most sought after by Americans especially those who have a steady income and are keen on planning for the future. The attractive features of whole life insurance include fixed premium level and fixed death benefit in the form of guaranteed payout. Taking a whole life insurance policy ensures number of benefits and advantages.
Death Benefit: Guaranteed face amount of the policy paid to the beneficiary without deduction (tax free) in the form of federal income taxes. There is an option wherein death benefit can be taken as a monthly income instead of a lump sum.
Premium level: The premium level is higher than term life insurance and remains steady until time of death or cancellation of the policy. The premiums do not increase regardless of changes in health or age. Dividends can reduce the premiums payable and contracted for.
Cash value: Whole life insurance accrues cash value and pays dividends to the insured. A portion of the premium paid by the insured is diverted towards investment in mutual funds, stocks, bonds or other type of interest bearing investment. In due course of time, the investment builds into an amount, referred to as cash value.
You as a policyholder can either cancel the whole life insurance policy and take the cash or have an option to re-invest the cash value amount in a new policy suitable for you. The insured can use the cash value amount to minimize premiums or can keep it within the policy to generate interest.
Loan: The accumulated cash value amount can be used as collateral to borrow loans. The insured enjoys twin benefits of retaining policy as well as using the money. In case the debt remains unpaid fully or partially, the benefits paid will be lesser.
Regular saving: Irrespective of the payment method such as single premium, continuous premium, limited or modified payment, whole life insurance policy forces you to save money on a regular basis.
Whole life insurance policy
Whole life insurance policy is not merely a hedge against unforeseen circumstances but also an investment. There are options available within the whole life insurance policy. Traditional whole life insurance policy guarantees minimum rate of return on the cash value portion. You can opt for interest-sensitive policy which promises variable rate on the cash portion. Building up a considerable cash value on your whole life insurance policy allows you to take a loan against it.
Other investment schemes are likely to give better returns than whole life insurance policies. But with whole life insurance you and your loved ones are protected. Whole life insurance works well for those wanted to cover long term needs such as pensions. But it is essential to look out for hidden commissions that can be outrageously high.