Whole Life Insurance Policy – How Does It Work?
Basically there are two types of life insurance policies, and these two types of policies work in very different ways, also with different rates. The first type is commonly called a temporary policy, which gives coverage for about 5-30 years, and most of the time the premiums don’t change too much. The other type of life insurance policy is permanent life insurance, which provides coverage for life.
These two basic types of life insurance policies also come in several different types, but we are not going to discuss all of those sub-types of life insurance policies. Whole life insurance is part of the permanent life insurance.
Whole life insurance policy provides you with coverage for your whole life. Part of the premiums you pay to the insurance provider will go to a savings that can accumulate over time. Your cash value is tax deferred up until the beneficiary withdraws the fund, additionally you can also borrow against it. So this type of life insurance policy actually accrues your money after the premiums are paid.
Whole life insurance policy is also divided into six different types:
Non-Participating Whole Life Insurance – This type of policy has a fixed premium that usually quite affordable for most people. However it doesn’t provide any dividends when the insured dies.
Participating Whole Life Insurance – This is pretty much the opposite of the first type. Participating whole life insurance pays dividends when the insured dies, and the premiums also a bit more expensive. But the great thing is, the dividends can be used to cover the premium payments because besides it can be accumulated with a certain interest rate, it can also be paid in cash.
Level Premium Whole Life Insurance – This policy has the same amount of premiums to be paid throughout the entire span of the policy. The initial amount of premiums will be enough to cover the services given plus to cover extra charges in case there is a rise of insurance cost in the market.
Limited Payment Whole Life Insurance – This type of policy only requires you to pay premiums in certain period of time as you specified. So you can decide to pay your premiums for the next 20 years or until you reach certain age or so.
Single Premium Whole Life Insurance Police – This is a very popular type of whole life insurance policy. It requires you to make only a single large payment at the time of the policy signing. It has cash and loan value, and usually attracts investment-oriented people.
Indeterminate Premium Whole Life Insurance – This is the most common type of whole life insurance policy. The company will set the amount of premium you need to pay based on how the company is doing financially, so the premium could fluctuates over time
