About Whole Life Insurance
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Purchasing whole life insurance is a good way to make provisions for your loved ones should an untimely event occur. Whole life insurance coverage offers a savings benefit, as well as a risk-free avenue for providing for your loved ones after you're gone.
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There are two basic types of life insurance: whole life insurance and term life insurance. Whole life insurance covers you for your entire life, whereas term life insurance only covers you for a preset term. The two also differ in that whole life insurance builds cash value, while term life doesn't.
Type
There are three types of whole life insurance life insurance to choose from:
Traditional - This coverage will guarantee you a minimum return rate on the cash value of the policy. Cash withdrawals are permitted as a down payment on a house if you're a first-time home buyer.
Interest-sensitive - This type incurs a variable interest rate on the cash value, however you do have the option of changing your death benefit amount without increasing the premium amount paid. Sometimes called, Universal Whole Life coverage, it should be noted that a certain amount of risk is involved where your cash value is concerned. Depending on the state of the economy and stock market, any cash value built up can suffer a big hit if economical conditions are poor.
Single-premium - This is a lump sum premium that's paid upfront. No premium payments are required after the one payment is made. Cash value accrues over time based on the set interest rate of the policy.
Benefits
Besides the cash value benefits of whole life insurance, the policy itself acts as a tax shelter, meaning no taxes are deducted from the cash value for the life of the policy. The tax savings coupled with interest accruals makes whole life coverage a savings/investment account all rolled into one policy. Do keep in mind that the interest gained on the cash value is small, so it would be best to view your whole life insurance policy as a portion of your investment portfolio rather than as the main asset.
One additional benefit of whole life insurance coverage is your premium amount remains the same for the life of the policy, however you cannot change the death benefit amount at any time unless it's an interest-sensitive policy.
Identification
How much life insurance coverage you'll need will depend on current expenses and assets. The amount it would take to support your beneficiaries for amount of years is the amount of insurance needed. If you have children, this is definitely something you want to take into account. .
Expenses would include the basics - food, mortgage, utilities. On top of this, figure future expenses such as vacation planning, and education costs. Assets will include your salary, savings, investments, and upcoming social security benefits.
Time Frame
There are some whole life insurance policies which give you the option to pay premiums over a set number of years, or until you reach a certain age. Because the payment term is shorter, your premium payments will be higher than if you were paying on it for the course of your life.
