Whole Life Insurance - A Short Explanation
Whole life insurance policies are permanent policies. This means that the whole life insurance policy must be paid on throughout your lifetime. A term policy is different because it is purchased for a set amount of time and when that term is over, the policy has to be renewed with higher premiums or turned into a permanent policy. With whole life, there is no renewal or conversion involved.
While your whole life policy is in force — that is paid for and active — your premiums are locked in at one fixed price. This does not change. The amount you pay in to a whole life insurance policy builds cash value. This means that you make money on your policy. Depending on your choice, dividends may be sent to you directly or they can be applied to lower your monthly premiums. The money you make on a whole life insurance policy is exempt from taxes and will not be counted as income on your yearly income tax.
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.
Flexibility is not part of a whole life insurance policy. The insurance company is in charge of investments; and the face value and premiums cannot be altered by your authorization. You do not have the option of lowering monthly premiums or increasing the face value of such a policy.
If you would rather not be involved with choosing investments for any reason and are fine with the original value of your whole life insurance policy, then this is the type of policy you will want to choose. You will receive modest dividends and your loved ones will be taken care upon your death with a whole life insurance policy.
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Tags: Insurance