When it comes to life insurance plans, many people prefer whole life insurance. A whole life insurance policy is one can keep for as long as you live and that will pay the face amount to your beneficiaries. Generally there are two types of whole life insurance policies: participating and non participating. A participating policy has cash value and earns dividends if the life insurance company performs efficiently, but dividends are not guaranteed. You can decide how the insurance company pays the dividends. You may take your dividend in cash. The insurance company will send you a check for the amount of dividend applied to your policy. You also have the option to leave your dividend with the insurance company. The insurance company will pay interest for the period you leave your dividend with them. You can then withdraw your dividend with the accumulated interest. You can also use your dividends to purchase paid up additions which are small single premium whole life policies having cash value and which earn interest. They also have proportionate dividends applied to them. You can even reduce your premium with your dividends. A non participating policy has cash value. It does not pay dividends. If you keep a whole life insurance policy for a specific period of time, the policy will build up guaranteed cash values which pay a guaranteed interest rate each year accumulating a considerable sum over time.
There are different variations to these policies:
- Graded Premium Life: Initially the premium is much lower than the normal amount and increases every year for a specified period when it levels off and remains level for the rest of the life of the policy. Depending on the insurance company, the premium generally increases for 5 or 10 years.
- Limited Payment Whole Life: The premium is paid only for a specific period of time but you still own your policy for your entire life. The cost of the policy is packed into the specified period. The policy continues to have cash value and earn dividends after the specified period.
- Single Premium Whole Life Insurance: The premium is paid only once but the policy has cash value and remains in force until your death. The policy also earns dividends if it is a participating policy.
In a whole life insurance policy, the named beneficiary received the face amount of the policy upon the death of the insured. The amount can be paid in a lump sum or income form.
