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What Is Whole Life Insurance?

family covered by whole life insuranceWhole life insurance, commonly known as standard life insurance, provides the insured with a guaranteed death benefit for the rest of his or her life. Whole life insurance has a savings component that can accumulate monetary value in addition to paying a death benefit. Interest is compounded at a fixed rate and is tax-deferred.

One sort of permanent life insurance is whole life insurance. Others include universal life, indexed universal life, and variable universal life. Whole life insurance is the first sort of life insurance, but it is not the same as permanent life insurance because there are many types of permanent life insurance.

Getting To Know Whole Life Insurance

In exchange for regular, level premium payments, whole life insurance assures a payment of a death benefit to beneficiaries. Along with the death benefit, the policy provides a savings component known as the “cash value.” Interest may build on a tax-deferred basis in the savings component. Whole life insurance has a cash value that grows over time.

A policyholder can pay more than the monthly premium to increase cash value (known as paid-up additions or PUA). Dividends can also be re-invested in the cash value of the policy to earn interest. The policyholder receives a living benefit from the cash value. The dividends and interest earned on the cash value of the insurance will often give a positive return to investors over time, rising larger than the entire amount of premiums paid into the policy. It is, in essence, a source of equity.

The policyholder must request a withdrawal or a loan to gain access to cash reserves. On loans, interest is imposed at different rates depending on the insurer. In addition, the owner is allowed to withdraw cash tax-free up to the amount of premiums paid. The death benefit will be reduced by the amount of unpaid loans.

mother and daughter smilingThe cash value of the insurance is reduced by withdrawals and unpaid policy loans. A withdrawal could also reduce or even eliminate the death benefit, depending on the policy type and the quantity of the remaining cash value. While some policies reduce the death benefit by the same amount as the amount withdrawn, others (such as some conventional whole life policies) may lower the death benefit by an amount greater than the amount removed.

Whole life insurance differs from term life insurance in that it only covers you for a set number of years rather than a lifetime and only pays out a death benefit. There is no cash value with term life insurance.

Particular Points To Consider

The death benefit is usually a predetermined amount specified in the insurance contract. Some plans are eligible for dividend payments, and the policyholder can choose to have the dividends used to acquire extra death benefits, increasing the amount paid at death. The beneficiary is not taxed on the death proceeds, thus they are not included in taxable gross income.

Certain policy provisions or incidents can also affect the death benefit. Unpaid policy debts, which include accrued interest, for example, diminish the death benefit dollar for dollar. Many insurers, on the other hand, charge a price for optional riders that assure or guarantee coverage, including the specified death benefit. The accidental death benefit and waiver of premium riders, for example, protect the death benefit if the insured becomes incapacitated or seriously or terminally sick and is unable to pay the premiums due.

young couple discussing whole life insuranceCertain policy provisions or incidents can also have an impact on the death benefit. Unpaid policy loans, including accumulated interest, for example, diminish the death benefit by the same amount.

Many insurers, on the other hand, offer optional riders that secure or guarantee coverage, including the stated death benefit, in exchange for a charge. The accidental death benefit and waiver of premium riders, for example, preserve the death benefit if the insured becomes incapacitated, critically sick, or terminally ill and is unable to pay premiums due.

What’s The Difference Between Whole Life And Universal Life Insurance?

Universal and whole life insurance are both types of permanent life insurance that provide guaranteed death payments for the duration of the insured’s life. A universal life policy, on the other hand, allows the policyholder to change both the death benefit and the premiums.

Greater death benefits, as one might imagine, necessitate higher premiums. If the balance is adequate to satisfy the minimum required, universal life policyholders can use their accrued cash value to pay premiums. Whole life insurance, on the other hand, does not enable modifications to the death benefit or premiums, which are fixed at the time of purchase.

The Simplest Way To Safeguard Your Family

Do you want life insurance that rewards you for your choices in life? Matador Insurance can help you select a life insurance plan that fits your needs and protects your loved ones. Get started today by learning more about how you can get the best life insurance plan at the best possible price. Reach out to Matador Insurance by contacting us online or requesting a consultation to speak with one of our financial consultants.