3.27.2012

Whole Life Policy

insurance
insurance (Photo credit: Alan Cleaver)
Withwhole life insurance, the policy holder pays a level premium on a yearly basis. The policy generally covers until the end of the person's lifeage 90 or 100. In most of the cases, the policy holder is overcharged for the premium, and the extra amount goes into an interest-bearing dividend account known as a cash value account. The customer can use the money in this account to pay future premiums, or can withdraw it or borrow against it to cover living expenses. With a variable whole life policy, the individual controls the investments made with his or her cash value account. Selecting certain kinds of investments, such as mutual funds, may allow the policy holder to increase the balance in the account considerably. In spite of of the performance of the investments, however, the amount ofthe insurancebenefit can never drop below its original value. When selecting a whole life policy, experts note, it is important to analyze the fund's past performance and inquire about c ommissions and hidden charges. Althoughwhole life insurancecan provide added security upon retirement, it must not be considered a replacement for retirement savings.
In other words, a Whole Life Policy is an insurance cover against death, irrespective of when it happens. Under Whole Life Policy, the policyholder pays regular premiums until his death, following which the money is handed over to his family. In this type of policy the customer's life is insured till his death, the legal heirs can receive the money after the death of the person. This policy, however, fails to tackle the additional needs of the insured during his post-retirement years. It doesn't take into consideration a person's increasing needs either. If the insured buys the policy at a young age, his requirements increase over time. By the time he dies, the value of the sum assured will be too low to meet his family's needs. As a result of these drawbacks, insurance firms now offer either a customized Whole Life Policy or a combination with another type of policy.
Features of Whole Life Policy

1. Uniform premium rates
In a whole lifeinsurance policythe premium rates are usually stable. It is worthwhile to invest in these policies in the early stages of one's life for two reasons. Firstly the financial injury will be minimal for a person of that age. Secondly when a person invests early he won't find it hard to pay the same amount even after he gets old because of two factors namely the increase in his income and the uniform rate of premium. In contrast if a person invests in this policy at a later period he will still have additional income but pay a higher amount of premium when compared with the person who started investment in the younger age. The simple logic behind this isthe insurancepremiums increase with a rise in cost of living. Thereforewhole Life insurancerates are regarded affordable.
2. Refund of policy amount
The insured does not fall into the risk of losing the money invested if in case he does not die or the period expires. This kind of policy allows the insured to claim a refund. However the amount of refund differs from policy to policy and many other factors like age, the number of years for which the policy is taken, etc. influences them. In short the standards chosen to evaluatewhole life insurancequotes will be considered.
3. Other benefits
The insurer can also take loans fromthe insurancecompany. The amount of such loans will be determined on the basis of his policy amount and premiums. However it must be understood that this will decline the amount of refund that they receive after the expiry of the policy. Besides this will also reduce the coverage of life protection that they are entitled to.
Types ofWhole life insurancepolicies
The two main categories of traditionalwhole Life Insuranceare as follows:
Ordinarywhole Life InsurancePolicies
Limited pay whole life policies
Ordinarywhole Life InsurancePolicies
This type ofinsurance policyrequires the insured to pay a fixed sum of money up to his old age. The fundamental idea is to ensure that when the policy matures that the insured gets money whose value equals death benefit. However for realistic reasons the insured person is not able to pay the money till the expiry of the policy. They either die before the policy period or close the policy and gain thesurrender valueto get maximum benefits.
Limited pay whole life policies
In Limited pay whole life policies the insured is required to pay premiums at a uniform rate. However the period for which the policy is taken in lesser when compared to the ordinary whole lifeinsurance policy. The insured is therefore required to pay a higher amount in the limited period. The policy comes to an end on the attainment of the slated period. Some of the classifications of limited whole life policies are as follows:
Interest Sensitive Whole Life Policies
UniversalWhole Life InsurancePolicies
Variable Life InsurancePolicies
Interest Sensitive Whole Life Policies
Interest Sensitive Whole Life Policies does not pay returns to the insured. However the amount earned by investing the insured's investment will be accounted and paid to the insured. At the sametime thecosts for maintaining his lifeinsurance policywill be charged from the same account. This is to ensure that the insurer has sufficient funds to pay in case of sudden death of the insured or surrender of the policy.
UniversalWhole Life InsurancePolicies
Universal Whole LifeInsurance Policyis a very flexible type ofinsurance policy, which allows for a change indeath benefitsevery year. It is also based on the probability of risks. In addition this policy also charges for all insurance related expenses from the customer's account on the basis of the changing economic trends. In case the customer did not pay sufficient money to meet the demands of this policy it will automatically terminate. In addition it also offers flexibility. The insurer can choose to stop from making the payments and commence it as soon as he wants if he desires so. This provision is applicable only if there is adequate amount to meet the expenses of the policy, in their account.
Variable Life Insurance
Comparison of allwhole life insurancewill reveal that Variable LifeInsurance policyis different from the others. In this policy the insured will be able to earn a higher amount when compared with the other policies. At the sametime theinsured will not be able to claim the benefits like loan. Working of this policy is similar when compared with otherwhole life insurancepolicies. The main characteristic feature is that the money deposited by the insured is invested in financial instruments like stocks and mutual funds. As a result the insured will be able to get higher returns if the stock on which his money has been invested performs well in the market. Whole Life Insurance policies enable the insured to earn returns on their investment. Therefore it is appropriate for persons who are looking for something beyond protection from a life insurance policy. The insurer invests the premiums in a range of stocks in some policies or chooses to invest in other sources like banks or even utilizes them to finance trade and related activities. If the insurer invests your premiums in stocks the returns are not definite. However investing them in other financial instruments, guarantees returns. However in the other policies the returns are almost guaranteed. The type of policy chosen by the insured decides whole life insurance quotes.
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