Whole life insurance covers you for your entire life, not just a specific period. Your life insurance death benefit remains the same, and so does your life insurance premium. (With term insurance, your premium increases as you age to account for the fact that you’re a bigger health risk.) Insurance companies keep both the premium and the death benefit constant during the life of a whole life policy by charging you a premium that’s higher than the cost of the insurance when you’re young and using some of that profit to pay for the higher cost of your insurance when you’re older.
You can distinguish whole life insurance from term insurance in two significant ways:
You don’t buy insurance for just one year at a time with whole life insurance.
You build up a cash value with whole life insurance.
Cash Value
Building a cash value means that your life insurance policy has a value greater than just the death benefit — the face value of the insurance policy — that goes to your beneficiaries when you die.
So what’s the catch? Why would anyone want term insurance instead of a policy with a value beyond the death benefit? To answer that question, you first need to examine how cashvalue whole life insurance works.
The investment concept
When you purchase a whole life policy, a portion of your premium goes toward the life insurance itself, another portion goes toward your cash value, and the rest goes toward administrative costs and your agent’s commission.The insurance company invests the cash-value portion, and in return, you get some of the profits. Your share goes into your cash value. In a sense, then, this portion is an investment.
Like all investments, it has its rewards.
Tax benefits
One of the biggest differences between this investment and many others is that all of the return on your investment is tax-deferred. You don’t have to pay any taxes on this gain until you withdraw it, unlike other investments for which you must pay a capital gains tax.
Rates of return
The rate of return you get from an investment in whole life insurance is based on the insurance company’s ability to invest wisely. The company combines all the cash-value money it gets from all its policyholders and invests this sum, usually in low-risk investments, which naturally pay lower profits than many other investments.
Dividends
Over and above the guaranteed rate of return, some companies offer policyholders the opportunity to benefit from the company’s success, just like shareholders do. The company pays policyholders dividends, based on how well the company did the previous year.
Traditional Whole Life
The following sections look at some of the specific features of traditional whole life insurance.
Death benefit
With whole life, just as with term insurance, your beneficiaries receive only the death benefit — the face value of the policy, meaning the protection you purchased — when you die, even though the premiums you paid also contributed toward a cash value.
Termination
If you terminate your whole life insurance, you’re entitled to receive a surrender value, which is basically the amount of your accrued cash value.
Policy loans
An additional benefit of whole life policies is the fact that you can borrow against your cash value, usually at interest rates significantly lower than market rates — between 6 and 8 percent. The rates are so low because the lender is assuming absolutely no risk — if you don’t pay back the loan, it can take the money from your account.
******Usman ahmed owner of this blog created this post with his knowledge.All content provided on this blog is not copied from any other blog and site and is for informational purposes only and The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.
You can distinguish whole life insurance from term insurance in two significant ways:
You don’t buy insurance for just one year at a time with whole life insurance.
You build up a cash value with whole life insurance.
Cash Value
Building a cash value means that your life insurance policy has a value greater than just the death benefit — the face value of the insurance policy — that goes to your beneficiaries when you die.
So what’s the catch? Why would anyone want term insurance instead of a policy with a value beyond the death benefit? To answer that question, you first need to examine how cashvalue whole life insurance works.
The investment concept
When you purchase a whole life policy, a portion of your premium goes toward the life insurance itself, another portion goes toward your cash value, and the rest goes toward administrative costs and your agent’s commission.The insurance company invests the cash-value portion, and in return, you get some of the profits. Your share goes into your cash value. In a sense, then, this portion is an investment.Like all investments, it has its rewards.
Tax benefits
One of the biggest differences between this investment and many others is that all of the return on your investment is tax-deferred. You don’t have to pay any taxes on this gain until you withdraw it, unlike other investments for which you must pay a capital gains tax.
Rates of return
The rate of return you get from an investment in whole life insurance is based on the insurance company’s ability to invest wisely. The company combines all the cash-value money it gets from all its policyholders and invests this sum, usually in low-risk investments, which naturally pay lower profits than many other investments.
Dividends
Over and above the guaranteed rate of return, some companies offer policyholders the opportunity to benefit from the company’s success, just like shareholders do. The company pays policyholders dividends, based on how well the company did the previous year.
Traditional Whole Life
The following sections look at some of the specific features of traditional whole life insurance.
Death benefit
With whole life, just as with term insurance, your beneficiaries receive only the death benefit — the face value of the policy, meaning the protection you purchased — when you die, even though the premiums you paid also contributed toward a cash value.
Termination
If you terminate your whole life insurance, you’re entitled to receive a surrender value, which is basically the amount of your accrued cash value.
Policy loans
An additional benefit of whole life policies is the fact that you can borrow against your cash value, usually at interest rates significantly lower than market rates — between 6 and 8 percent. The rates are so low because the lender is assuming absolutely no risk — if you don’t pay back the loan, it can take the money from your account.
For The User
******Usman ahmed owner of this blog created this post with his knowledge.All content provided on this blog is not copied from any other blog and site and is for informational purposes only and The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information.
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