Whole Life Insurance - A Short Explanation
Author: DarrylRiedl Total views: 15 Word Count: 310
Unlike term life insurance, whole life insurance policies are permanent. "Permanent" means there are no specific periods for the policy to be in effect. You purchase the policy, pay monthly premiums and have your policy for life. Term life policies require renewal at a higher cost or must be converted to a permanent policy when the term runs out.
Whole life insurance policies have the same premium rates throughout the time the policy is in force. As long as your payments are timely, the price is locked in. The money you pay in to a whole life policy builds cash value, meaning you can make money on your policy. The result is a modest dividend on your payments. Dividends on whole life policies can be taken immediately or applied to the price of your premiums to lessen the monthly cost. This money is exempt from taxes and so does not have to be counted as income.
Whole life insurance gives you the right to withdraw money from the policy while you are alive. You can borrow money against the face value of your policy. Of course, doing either of these will reduce the benefits to your beneficiaries if you do not replace the money before your death.
With whole life insurance, you are not involved with the investment process. The company makes these decisions for you. You cannot raise your face value or alter your premium payments (other than by applying dividends). The face value is locked in from the date of purchase.
The benefits of having a whole life insurance policy include passivity, moderate dividends and of course, benefits to your loved ones upon your death. If you prefer to be involved in investment and want to be able to raise the value of your policy at your own discretion, a whole life insurance policy is not for you.
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