Contrary to the term life insurance that covers only a segment of the insurer’s life, whole life insurance offers coverage the individual’s entire life. Though the death benefit and premium remains the same in both the cases, with whole life insurance cash value is built as a return on a part of your insurance premiums that the insurance company invests. Your cash value is tax-deferred till withdrawal and you can even use it for borrowing.
The other difference between the two policies is that in whole life insurance a part of insurance premium money is allotted to your cash value, which could be used to pay off your entire insurance policy in few years. Even then till the time you decide to alter your insurance premium, it continues to be the same. Along with tax savings the whole life insurance also offers a significantly less rate of return.
Whole life insurance serves you with several options. The traditional or conventional whole life insurance provides you a guarantee of minimum rate of return on your cash value part. While the interest sensitive whole lie insurance offers better death benefit without any change in your insurance premiums.
For people with large sums of money and willing to buy an insurance policy upfront, single premium whole life insurance is a perfect choice. Akin to the other types of whole life insurance the single whole life insurance option too gathers cash value with same tax cover on returns.
Whole life insurance has an edge over other types of insurance in several ways. Whole life insurance offers a guaranteed coverage to the extent of the necessary premiums being paid. The whole life insurance lasts long till the retirement or death of the policyholder. Thus this insurance is also the first choice of all those who wish to cover long term needs such as pensions and final expenses or for protecting financial assets. It also provides the opportunity of building up cash value and to take loan from your insurance company on your insurance policy if you desire. Generally death benefit from insurance is devoid of any tax.
All in all the whole life insurance is a protection cover for your dependents while building cash value account. In case whole life insurance the insurance company manages policies of various accounts. The company pays a death benefit to your designated beneficiary with a low risk cash value account and tax-deferred cash accumulation. The premium of the insurance is fixed once and for all unless you do not quit paying the decided sum of money. You have the choice of receiving dividends of your insurance policy or use that amount to reduce your payments. The option to withdraw from the policy during your lifetime is also at your discretion.
Not all life insurance polices are create equal. What works for one person may not be ideal for the next. When taking out a life insurance policy, many you should ensure that that you are getting value for money, are covered in the areas that are important to you and not paying for features that add no value given your circumstances.
What are the different types of life assurance?
The basic criterion of a life assurance policy is that it pays out a lump sum on the policyholder's death. The mind boggles as the number of possible variations and we can often be baffled by the amount of jargon.
Broadly speaking, there are two basic categories of life insurance ? protection only and investment.
- Protection only:
Known as "term insurance", protection-only policies pay a specified amount if you die within a defined period. If you survive it pays out nothing.
Within this category there are various different types of policy including decreasing term (more widely known as mortgage protection) where the sum decreases commensurate with your mortgage commitments; level term, which pays out an assured sum that remains unchanged throughout the term; and increasing term which is linked to inflation.
- Investment One of the most popular forms of investment life assurance is the endowment policy. This is essentially a savings scheme with the added bonus of life insurance and pays out a sum of money if you die within a certain period OR pays a sum of money out at the end of that agreed period if you survive. This sector also includes "Whole Of Life" insurance, which guarantees the payment of a lump sum when the policyholder dies whenever that is (as long as you keep up with your payments).
Again, there are various types of whole life policy including non-profit (where the cash sum is fixed) and with profit (which pays a fixed cash sum plus any profits made on the investment, varying terms are available).
Your choice of life assurance is going to be dictated by several factors. First of all, look at your family circumstances ? do you have a mortgage? Will your partner be able to meet the mortgage repayments in your absence? If not, then mortgage protection is a must.
If your partner is looking after children and unable to replace your income in the event of your death, then you should consider a policy that replaces your income and perhaps considers extra expenses such as childcare or school fees.
Once the basics have been addresses, you can then take a balanced view of what other benefits you can afford, for example ? you might be able to afford to leave something to your children in the event of your death? Do you want to enter into a life assurance policy such as an endowment purely for investment purposes?
Whatever your requirements, once you understand what is available you can use online resources such as Motley Fool or an online personal finance site like ASDA Finance, to make your decision easier.
Both Mansi Gupta & Peter Spyr are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Mansi Gupta has sinced written about articles on various topics from Tax, Business and Finance and Vacation. Mansi gupta recommends that you visit for more information on Whole Life Insurance. Mansi Gupta's top article generates over 90500 views. to your Favourites.
Peter Spyr has sinced written about articles on various topics from Leadership, Insurance and Poor Credit. Visit ASDA Finance for a comprehensive range of services. Peter Spyr's top article generates over 60500 views. to your Favourites.