When you are considering a whole life insurance policy, a number of questions will come to your mind. The foremost will be why buy a whole life insurance policy? Well, for starts, a whole life insurance policy is the best bet if your goals are long term. It has built-in savings element. It builds cash value for your premiums, and can be used as part of your estate planning. Most importantly it provides protection for your entire life if you pay your premiums regularly. 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. Whole life insurance is not cheap initially. Term insurance is a cheaper option in the short term. But whole life works cheaper in the long run. In the beginning you will be paying higher premiums but you’ll end up paying less overall for whole life insurance than you would if you keep renewing your term life policy as you age.
Before buying whole life insurance, you will also need to know the difference between whole life and term life. Term life insurance provides coverage for a specific period or term. Term insurance provides protection for a specified period of time. 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. 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. Traditional whole life policies require payment of premiums throughout your life, but there are other types of whole life insurance policies that may be paid in full sooner. There are some life insurance products that can be purchased with a one-time payment, or with a fixed period of premiums to pay off the entire policy.
Generally, you can borrow money against the cash value of a whole life insurance policy, if there is sufficient cash value in the policy to secure the loan. You can also surrender a whole life insurance in certain circumstances. The surrender value is determined by the current cash value less any outstanding loans or unpaid premiums. Whole life insurance is considered an investment vehicle and dividend amount that is greater than the premium will be taxed. The same holds true for cash value if the policy is surrendered for cash value.
