Whole Life Insurance
Whole Life Insurance is a type of life insurance policy that remains in force throughout the insured's lifetime, provided premiums are paid. The death benefit is paid to the nominee upon the insured's death, no matter when it occurs. The policyholder has the option to withdraw or borrow against the policy at any time. The policy matures at the age of 100, and if the insured survives this age, the policy becomes a matured endowment. Additionally, the death benefit is typically tax-free.
Types of Whole Life Insurance Policies:
- Non-Participating Whole Life Insurance:
This policy has a fixed premium and face amount throughout the insured's life.
Advantages: Fixed premium payments, low out-of-pocket expenses.
Disadvantages: Does not pay dividends, and there is no participation in the insurer's profits.
- Participating Whole Life Insurance:A participating policy offers dividends, which are paid from the insurer’s surplus earnings. These earnings may come from investment gains, savings on expenses, and favorable mortality experience.
- Dividend Options:
Cash Payment: Paid out directly to the policyholder.
Premium Reduction: Dividends can reduce premium amounts.
Accumulation: Dividends can accumulate with interest.
Paid-Up Additional Insurance: Dividends can be used to purchase extra coverage, increasing the policy’s face amount.
While dividends are not guaranteed, they provide additional benefits to policyholders.
Different Types of Whole Life Policies:
- Level Premium Whole Life Insurance:
The premiums are fixed throughout the policyholder’s life, but in the early years, the premiums are higher than needed, and the surplus funds are used to cover later premium costs when they might not be sufficient.
Advantages: Premium remains level and predictable throughout life.
- Limited Payment Whole Life Insurance:
Premiums are paid for a limited period, such as 10 or 20 years, but the policy provides lifetime protection.
Higher Premiums: Since premiums are paid over a shorter period, the premium amount is higher than in a regular whole life policy.
Advantages: Paid-up policy after a limited time.
- Single Premium Whole Life Insurance:
The policyholder pays a single lump sum premium at the beginning, which makes the policy fully paid up immediately, with no further premium payments required.
Advantages: No ongoing premium payments; the policy builds a cash value and loan value right away.
Considered as an Investment Product: Due to the significant lump sum premium payment, it is often seen as a mix of investment and life insurance.
- Indeterminate Premium Whole Life Insurance:
Similar to the standard whole life policy but allows flexibility in premiums. The insurer can adjust the premium based on its earnings, mortality costs, and expenses.
Advantages: Premiums can be adjusted based on the insurer's financial performance, giving the insurer flexibility in setting rates.
