Posts tagged with Life Insurance

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May 14, 2010

Whole life insurance explained

Whole life insurance explained

Life insurance is one of the most important needs of people because of the uncertainties involved in life. It is quite true that today nothing is certain anymore. Therefore, such kind of a policy helps you to arrange for the security of your loved ones.

A whole life insurance policy is quite different from a term life insurance policy. It is because this kind of a policy ensures benefit for your entire life. The total value of premiums paid is the same as the benefit you receive on death.
The insurance company also invests a certain value of your premiums in some investment. An insured can borrow in lieu of this sum of money called cash value. The returns earned on it along with the principal are tax deductible.
There are many choices that an investor has before himself in a whole life term insurance policy. In the conventional form of such policy, the policy ensures that the insured is able to earn a definite return on the invested funds. However, an interest sensitive variant of this kind a policy ensures that you get a higher interest in the cash value of your premiums. This type of a policy can make one earn higher premiums provided the rates of interest are higher in the economy.

The last option of the single premium whole life insurance policy ensures that the insured is able to earn a lump sum interest on the principal invested by him. He purchases the policy with a large payment and does not incur any premiums it also has a cash value just like other versions of the whole life insurance policy. The premiums are also tax deductible.
There are other differences between term and whole life insurance. One such difference is that the amount of the premium for the tenure of the policy does not change in the latter. However, in the case of term insurance, the amount of premiums can change depending on your medical exams.
The rate that you can earn on a life insurance policy is lower when that on other instruments is taken into consideration. However, this kind of a policy is not only taken for earning returns, but for the high protection, it offers. In addition, it offers tax benefits, which can make so much of an added income.
The policyholders get the advantage of extending the premiums over their own lives. Apart from that, anyone can avail the policy. However, a major drawback of taking such a policy is that they do not provide a large amount of coverage for amount of the premium expended by the insured. On the other hand, the huge cash value of the policy can be misapplied by the insured. This should not happen because whole life insurances carry a high rate of interest as compared to other kinds of instruments. The cash value with interest is not much when contrasted with other investment objects and their rate of return.