Whole Life Insurance
What is whole life insurance and who needs it?
Whole life insurance provides lifetime insurance coverage
for a payment of a level premium throughout the life of the
policy. The premium for the earlier years is invested into
a policy reserve to cover the cost of insurance in the later
years. The existence of policy reserves also allows the possibility
of other benefits such as extended term insurance and possibly
paid up insurance. Whole life insurance is useful when there
is a need for lifetime protection against financial risks.
Some financial risks would be funeral expenses, debts, legal
fees or even the taxes payable at death.
Types of whole life policies
Participating whole life policy
– the policyowner shares with the insurance company
some of the risks and rewards associated with the life insurance
underwriting. The insurance company may entitle the policyowner
a return on investment in the form of dividends.
Nonparticipating whole life policy
– the policyowner does not share in the risks and rewards
of the insurance company. Therefore, the premiums, benefits
and values are fixed and guaranteed at the time of policy
issue.
What is Cash Surrender Value?
A permanent life insurance policy contains a savings component
that is known as the policy’s cash surrender value.
A policy that provides cash surrender value will include a
chart that illustrates how the cash surrender value will grow
over time. If for some reason the policy does not remain in
force until the insured’s death, the insurance company
will agree to refund the cash value to the policy-owner after
deducting any surrender charges and outstanding policy loans.
Loan Security
A whole life insurance policy that has accumulated cash value
may use the cash surrender value as security for a loan. This
is made possible because the amount of loan outstanding (including
interest charges) will be paid off by the life insurance benefit
amount of the policy.
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