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Whole Life Insurance - What Is It and How Can It Help You?
It is very easy to understand what a whole life
insurance is and how it can help you. As the name shows, your life insurance policy will provide you a lifelong protection.
Whole life insurance is a permanent type of life insurance which unlike Term Life Insurance, won't end after only a few years.
How long do we need to pay for a whole life insurance?
There are whole life insurance policies designed to mature at the age of 100, this is the age when premiums end and the cash value equals to the face value of the policy, and this cash value will be paid to the insured.
Normally this policy doesn't specified how long is the maturity, the premiums are calculated by the insured's age, usually starts at the age when he buys until 85 years old, the male and female could be different because the females have a longer life span than the men.
The premium is then calculated, and a fixed amount of premium needs to be paid, whether monthly, quarter yearly, half yearly or yearly.
As long as the buyer pays the premiums, he will benefit the guaranteed death benefit.
Should he die at old age or young, or should he die of accident or illness the life insurance company will pay a lump sum of money to the beneficiary, this amount of money is depended on how much the buyer wants to be insured, if he wants to have a coverage of $100 thousand, the beneficiary will receive a one lump sum of $100 thousand upon his death.
Whole life insurance provides the buyer with cash value, and the buyer can borrows money from the cash value, or if the buyer wished to stop paying the premium for some time, the cash value will pay the premiums automatically, so that the policy will not lapse.
But if the cash value has used up in the life insurance, the buyer needs to start paying the premiums again or else the policy will lapse.
Another benefit for this policy is, the coverage is adjustable, and it can be increased. If the initial coverage is $50 thousand, the coverage after some years could be more than $50 thousand.
That is to say the insured now has a coverage of more than the initial $50 thousand without paying more on the previously stated premiums.
Cash value accumulation
Another benefit of whole life insurance is the cash value accumulation. This cash value was built after the buyer paid his premium, this cash value increases each year, and the insurance company will increase the cash value as interest to benefit the policy holder.
If the policy holder wants to surrender the policy and get the cash he is entitled to do so, but he will no longer under cover, but normally he is advised not to do so.
The buyer has another option that is he can borrow the cash as loan and maintain his policy, so that he is still insured. The cash value taken out is tax-free, and in some countries the premium paid per annum is declarable for tax paying, that is the buyer can reduce his tax payment.
This tax reduction is another benefit for a life insurance buyer.
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