Whole life insurance is an excellent kind of permanent coverage, which is available in an array of attractive styles to suit many different budgetary needs. For some individuals, buying term life insurance rather than whole life coverage is usually the way to gain the amount of permanent coverage they require. However, the former is not without its own disadvantages, which is why whole life policies are preferable for many different types of people. Whole life policies will give you a secure, long-term payout, even after your death.
Term insurance premiums are normally much lower with whole life policies, even on a universal basis. This means that you pay a lump sum cash value premium for the duration of your contract, and then your death benefit is paid out as regular income tax-deductible payments. The term premiums can be refunded with additional deductions up to the extent of ten percent of the face value of the policy, but this must be applied before the end of the term. If there are any unused premiums, they can remain untouched until they are paid out in your death benefit.
You can choose between investing in a separate account for your insurance needs or having your death benefit invested in a mutual insurance fund, depending on what is more comfortable for you. There are advantages and disadvantages with both options, and it really comes down to how you want to receive your death benefit. If you invest in an account separate from your other investments, your beneficiaries will get their death benefit no matter what happens to the investments. In a mutual fund account, if one of the investments goes bad, the others will receive the appropriate amounts. Whichever scenario you choose is completely up to you, though you should bear in mind that the higher your risk, the lower your potential payout may be.
Guaranteed Insurance: As the name implies, guaranteed insurance allows you to purchase a certain amount based on future income that is held in an insurance agency’s trust account. This type of policy is not taxable nor is it considered a gift. Your premium for this type of life insurance policy is completely tax-deferred, meaning that any income earned through the coverage will not be taxable until distribution.
Maintenance Insurance: This kind of insurance pays out a regular income that is paid out according to a dividend schedule. If dividends are received by the policyholder, they are considered part of the death benefit. If dividends are not received, the policyholder receives payment in the form of a flat premium payment or as part of the dividends. The policyholder has the option to receive either paid-up additions or deductions. If dividends are received, they are considered taxable income.
Term Life Insurance: Also known as universal life policies, whole term life policies pay out a level of cash value, which is adjusted each year. The cash value is also subject to appreciation. Unlike a universal policy, there is no tax required on premiums paid in the event of loss of life. There are also no restrictions on the death benefits that can be attained.
Both whole life and term life have terms that range from one year to 30 years. While term policies can be renewed, whole life policies cannot be renewed. Refunds occur only upon death or when the policy is surrendered. Death prior to maturity cannot result in cancellation of a whole life policy.
Whole Life Insurance policies have two distinct types – Level Term and Accidental Death Coverage. Level term whole life insurances pay a cash value for a specified period of time. After the policy expires, the cash value is adjusted for mortality and then is invested in various funds. The face amount in whole life policies is 100% face value, as opposed to traditional insurance policies that base their values on the age of the insured at the time of application. Unlike other policies, however, cash surrender charges apply if the insured cashes out before the maturity date. For these reasons, whole life insurance policies are not advisable for young people who do not anticipate a long lifetime.