One of the most important things we do in life is to protect those we love. And one way we do it is by investing in a life insurance policy. The type and amount of life insurance you buy depends on many factors, including the size of your family, your current financial obligations, where you are in your career, and your future goals.
A whole life insurance policy helps take care of your beneficiaries’ financial needs when you die.
How Does Whole Life Insurance Work?
Whole life insurance is a permanent or lifetime policy that builds cash value over time. The monthly premium payments remain the same for the policy’s life regardless of the policyholder’s age or any health changes. If the premium payments are current, the policy remains in effect.
Monthly premiums are based on the policy coverage amount and are allotted between several segments:
- Partial funding for the policy’s face value (the death benefit).
- Contributions to the cash value account.
- The insurer’s operating costs, cost of insuring you, and profits.
Unlike term insurance, which covers a specific term (10 or 20 years, for example), whole life insurance policies never expire. Instead, whole life insurance remains in effect until you die or cancel the policy.
What is a Cash Value Benefit?
Whole life insurance policies are one of the few plans that build a tax-deferred cash value over time. As you pay the premiums, the cash value increases. The cash value benefit includes withdrawing it as a policy loan.
For instance, you may have an unexpected medical bill after paying policy premiums for many years. It is possible to withdraw the needed funds from your whole life policy. As long as you continue to repay the loan and interest payments, the policy retains its full value, which is paid to your beneficiary should you die. If you do not repay the loan, the loan’s outstanding balance reduces the death benefit.
Types of Whole Life Insurance
There are several types of whole life insurance policies.
- “Typical” policies provide level premiums, so your rate remains the same for the life of the policy.
- A “limited payment” policy includes premium payments for a specified number of years and then a lump sum payment, so you don’t need to pay premiums throughout your life.
- With a “single premium” policy, you purchase a specific death benefit for a specified sum of money, i.e., you could pay $25,000 for a $50,000 death benefit.
- “Modified premium” policies let you pay lower premiums for the first five to ten years, and after that, higher premiums kick in. This type of policy is ideal for people who want a higher death benefit and know they’ll be in a better position in the future to pay higher premiums.
- Some married couples invest in a joint life insurance policy known as a “survivorship policy” that only pays the death benefit after both people die. Parents with special needs children who require continued care may find this type of policy helpful.
- “Universal life” and “variable universal life” policies feature flexible premium payments based on, among other things, the cost of insurance. Variable policies differ from universal policies in that they use the cash value portion of the premium to invest in the market.
- “Final expense” insurance, also referred to as burial or funeral insurance, helps cover end-of-life expenses like medical bills and burial or cremation costs.
ABC Dennis Insurance
To get the best policy for your family, talk to an ABC Dennis Insurance agent about how to ensure your loved ones, leaving them the financial nest egg they will need for their well-being after you’re gone.
ABC Dennis Insurance is an independent insurance agency established in 1997 that provides life insurance to its customers. If you have not reviewed your insurance coverages this year, please call our office at (813) 949-7765 or email us.
Besides life insurance, we can help with all your insurance needs. As an independent agency, we provide the best insurance coverage with the most competitive rates.
