Getting an insurance policy can be extremely taxing for the brain. There are so many options available and each option has so many clauses and articles that any person can be easily confused. However, one cannot also deny the importance and advantages of having an insurance policy these days. In this article, you would find the basics of the whole life insurance explained in detail.
As the name of the specific insurance suggests, whole life policys are for the whole life of the insured as opposed to term life insurance policies which are a for a specified number of years. In term life policies, if the policy period ends before the demise of the person, then the whole investment goes in vain. To take care of this problem, the concept of whole life insurance was started.
Though the premium amount in whole life annuities is higher than the premium amount of term life policies, the premium in the whole life policies remains constant in general while the amount in term life policies increases consistently.
Another major advantage of whole life insurance contracts is the concept of cash reserve. A savings account is created in the name of the policy owner and a part of the premium amount is diverted to this account so that over time, a big cash reserve is created. The resulting pool of cash can be claimed by either cashing in the policy or by borrowing some amount against it. Traditional whole life insurance annuities are of six types. The names of the different types and the basic difference between them are mentioned below:
1. Non-Participating: In these policies, death benefits, premiums, cash surrender values and other values pertaining to the policy are determined unalterably for the life of the policy at the time of policy issue.
2. Participating: In participating policies, excess profits are shared with the policyholder by the company. The paid refunds are generally not taxable.
3. Indeterminate Premium: Though the premium amount may vary from year to year in these policies, the amount never exceeds the maximum premium mentioned in the policy. They are similar to non-participating policies otherwise.
4. Economic: Economic policies are a combination of term life insurance and participating policies. In these, an additional term insurance is purchased using the dividends.
5. Limited Pay: Annual premiums are paid for a stipulated number of years in these types of policies. They are otherwise similar to participating policies.
6. Single Premium: Instead of the pay period of limited insurance policies, a single large amount, which is lesser than the summation of the premium amount paid for years, has to be paid up front in these policies.
Whole life insurance annuities are literally an investment of a lifetime and therefore one must research well before buying them. However, considering the inconsistent and variable nature of human life, they are really a worthwhile investment.
A whole life insurance definition is not always enough to understand what these type of annuities entail. For whole life insurance explained follow the links.
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