Whole life insurance, even though it is not the least expensive life insurance policy you can buy, can still fulfill the needs of some people.
Why some people have such an aversion to this policy I will never understand. Term insurance is also good insurance and can fit into more situations than whole life because of the low cost.
More people can afford it. Both types of life insurance serve the same purposes, however, when you buy whole life you get some additional benefits that term life insurance does not provide. Let us take a look at the whole life insurance policy and it’s benefits.
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What Whole Life Insurance Does
- Level Premium
Whole life insurance has a fixed level premium which never increases for as long as you own the policy. When you pay a whole life premium a portion goes to pay for the death benefit and a portion is applied to cash values. In the initial years a portion of the premium is also applied to administrative costs.
- Death Benefit
Like any other life insurance policy the whole life policy has a guaranteed death benefit which can be paid either in one lump sum or in the form of a monthly income. This death benefit is usually paid free of federal income taxes.
There are several income options including a life income, an income for a fixed predetermined period and an income for a fixed amount. The insurance company can also keep the principal and just pay the interest. The principal is paid upon demand.
- Cash Values
The whole life type of insurance policy contains a guaranteed cash value which accumulates tax deferred. If you are ever in need of cash you may borrow from the cash value of your policy. You don’t need to tell the insurance company why you want the money and you pay back the money at your convenience.
Cash values earn dividends which depend on the performance of the company. These dividends are not guaranteed. They can be taken in cash, can be left to accumulate interest, can be use to reduce premiums or they can be used to purchase paid up additions. Paid up additions on a whole life policy are small fully paid up , single premium, whole life policies.
These paid up additions have cash values and also earn dividends. There are many riders you can add to your whole life policy. The two main riders are the waiver of premium benefit and the accidental death benefit rider also known as the double indemnity rider.
- Waiver Of Premium
If the insured should become disabled, any time after six months of disability the life insurance company will step in and pay the premiums even if the disability lasts for the lifetime of the insured.
- Accidental Death Benefit
If the insured person should die in an accident, for example an automobile accident, the life insurance company will pay twice the death benefit. If you have a policy for $100,000, and you have the accidental death benefit rider, the insurance company will pay $200,000 to your beneficiary.
The above benefits may be worth the extra premium you would pay for a whole life insurance policy.