Life Insurance Cost

Whole life insurance serves two purposes. In cases where the contract owner dies it provides a certain death benefit, which is the major benefit that term life insurance provides. However it also can serve as a savings and investment vehicle for policy owners due to the fact these policies build up cash value. A whole life policy, depending on what type you buy, may build up cash value fairly quickly into your whole life policy. This enables you to either borrow against your cash value at a low interest rate, or surrender the policy to get the cash value out.

Because whole life policies have an investment portion, the premiums are usually more expensive than those for term life policies. Whole life policies have different types of payment plans, so it shouldn’t be hard to find one that will suit your needs and circumstances. Your premium costs will normally be lower when you first get a policy due to that fact that you are younger which poses less risk to the insurance company. Over time the cost of the premium will go up as you grow older and the risk increases to the insurance company. If your income is going to increase with time this can be of great benefit to you.

However, that is not always the case. Many times, income and earnings go down as you get closer to retirement age. Whole life policies offer two different ways of dealing with this. The first option is to use a whole life policy called limited premium. Typically with whole life policies you must continue to pay premiums to keep the policy in force. This usually means paying premiums for your entire life, with premium costs increasing as you age. With a limit premium policy, you can pay the full cost of your life insurance but within a set time period. However the insurance protection will continue for your entire life, unlike term life. The premiums will be a lot higher than ones you would pay for term life, however, since the coverage period is a lot longer.

The second option is called level premium. This type of policy allows you to pay a set amount for each premium over the policy’s entire life. During the earlier years you end up paying more for your insurance. The difference is then invested to help pay for the increased cost for your insurance during your later years.

A third option is called graded premium. This type of policy takes into account likelihoods that your income will increase during your career and also decrease when you retire. Graded premium policies start with fairly small premiums to reflect a lower earning power when you are just starting out in your career. Over time the premium will gradually increase until it reaches a specific level or time period. It then begins to reverse and go back down to help make the premium cost more affordable for when you retire.

If you are considering getting whole life insurance, be sure to discuss all the different premium payment options that are available to you with a financial adviser to be sure that you select the best option for you.

Whole life insurance, just like term life insurance, pays out following the insured’s death. However, these two kinds of insurance are quite different in several ways. Term life is usually a lot less expensive because the protection is temporary. On the other hand, whole life has higher premiums but also provides protection over your entire life. Because whole life is more expensive, shouldn’t you just buy term policies in a series rather than purchasing whole life insurance?

Actually, the answer is no. If you are planning to stay insured for the rest of your life, then a whole life policy is a better investment. There are several reasons for this.

* Whole Life Insurance Covers You For Your Entire Life
Whole life’s biggest advantage is one policy covers you for life provided that you make all your premium payments. You don’t ever have to renew your policy. Also, although you pay extra money for whole life insurance than you do for term life insurance, the cost of your premium stays the same over your lifetime, making it easier to budget for the expense during your lifetime.

However, if you decide to purchase a series of policies for term life insurance, the premium costs will keep increasing each time you renew or buy new policies because of your age increasing and potentially your health getting poorer.

* Whole Life Insurance Carries A Cash Value
Another important advantage to whole life insurance is that there is a cash value component to it. You are able to access this cash value whenever you want or need to. You won’t have to qualify for it, and the interest rate will most likely be lower than it would be on a regular loan.

* Dividends
Whole life policies have an investment component. Part of your premium cost goes toward the payout on a claim and the rest of the payment is invested. Some of these policies pay out investment dividends to their customers, depending on what the insurance company’s profits are for the fiscal year.

* Cessation of Premium Payment
Some whole life policies have an added benefit of premium payments stopping once you are a certain age. As long as you have made all your premium payments, these types of policies continue to provide you with coverage without you needing to pay any more premiums. This is a very good option for retirees whose incomes may be reduced after they retire.

* There Are Some Important Uses For Term Life Insurance
Of course this doesn’t mean that term life insurance is useless. You just need to know which type of insurance is most appropriate and beneficial for your particular situation and status in life. Usually term life insurance is more suited for covering temporary types of situations. Young newlyweds, for example, who aren’t planning to have children for several years may be able to get low cost protection on a temporary basis and then still be able to switch over to fairly inexpensive whole life insurance while they’re still young.

Typically there are seven different kinds of whole life insurance to choose from. Not every single insurance company offers all seven whole life insurance options. However, there is one thing all policies for whole life insurance have in common and that is premiums.

A premium is the payment that you pay to an insurance company to obtain and maintain an insurance policy. If you fail to make your premium payments, your policy can end up being terminated. Usually when a policy gets terminated for failing to pay the premiums, you will end up with nothing. That is why it is very important to always pay your premiums on time.

With both participating and non-participating whole life insurance, the amount of the premium gets set when the policy starts. The premiums remains the same for the entire policy’s life and cannot be changed. With a non-participating policy, if the premium ends up being too low or too high, it is the insurance company that either keeps the excess or pays for the shortfall. On participating life insurance, the excess is shared by the insured and insurance company.

Economic whole life is a blend of participating and term life insurance. Any excess of premiums that are paid (called dividends) is used for purchasing extra term life insurance. If dividends come in below the estimate, the death benefit on the policy decreases for the year.

An indeterminate premium just means that the cost of premium on the whole life policy will vary each year. It is similar in some ways to non-participating whole life, except that changes to the premium are made to meet the current conditions in the market.

Limited pay is a type of whole life insurance that is very similar to participating whole life. However you only pay premiums for a certain specified number of years instead of for your entire life. For example, you may pay premiums for 20 years. After the time period is over, you will still be covered by the whole life insurance without having to pay any premiums.

Single premium is a type of whole life where the entire policy is paid for with one large upfront payment. It is a kind of limited pay. Once the lump sum has been paid, there aren’t any other premiums that need to be paid and you are still covered by the insurance policy.

Interest sensitive is a type of whole life insurance where the cost of the premium can vary based on current market conditions. This is similar to what happens with universal life insurance. The interest on the total cash value of the policy changes as market conditions change with the premium being adjusted as well.

Every whole life insurance policy requires that the insured pay premiums. They are just paid differently depending on what type of policy it is. An insured individual who makes an initial large premium payment on the insurance policy will probably be able to that again at some point in the future. Insured individuals who don’t make a big premium payment will probably not be permitted to do so in the future.

For those who aren’t too familiar with life insurance, standard contracts may seem somewhat intimidating. The life insurance companies have special language that they use, which can potentially confuse the average person when they are shopping for insurance. Whole life insurance can be especially confusing and has its own set of common terms. Here is a glossary to help you become familiar with some of the terms related to whole life insurance.

Whole Life Insurance Glossary

Dividends: The money that is paid back or returned from the premium. There are several reasons why insurance companies pay out dividends. Usually it is the money that is left after charges, fees and investment goals have all been met within a policy’s given time period.

Death Benefits: This is the money that beneficiaries receive when the insured dies. Most whole life policies have an amount of death benefit that is guaranteed and then investment income which supplements this over time.

Estate Planning: This refers to taking a whole life policy out in order to help cover the costs for real estate. Many people are worried that their family will be unable to pay the outstanding debt on property or be able to pay taxes on the property after they die. There are some whole life plans that can used to help offset the costs on property.

Indeterminate Premium: This is an adjustable premium. There are different factors that can be used to calculate these premiums. Normally these include investment projections and mortality estimates. A majority of these plans will have premium limits that can’t be exceeded.

Level Premium: This type of premium is fixed. During the initial policy years the premium is a bit higher, but it doesn’t increase. Extra money paid in the beginning gets used to cover the policy cost in the later years when normally it would be more expensive.

Limited Payment Insurance: With this type of plan premiums are only paid for a couple years. You are still insured for life under this type of policy, but only premiums for a certain amount of time. The cost for these premiums will be a lot higher than for other types of whole life insurance.

Living Benefits: This is policy money that the insured person can use. It refers to withdrawals the insured makes when either they need funds or their insurance needs go down. Living benefits can be either deducted from the death benefit or made in the form of a loan that can be paid back.

Non-Participating Insurance: this is an insurance plan that has fixed premiums and is low maintenance. This form of plan doesn’t pay dividends to due to the fact that the cost is low and is a level plan.

Participating Insurance: this type of policy does pay out dividends. There can be different kinds of premiums with participating insurance plans.

Retirement Funding: this refers to dissolving the policy in order to supplement the insured’s retirement income. For individuals do not need death benefits anymore or who have other life circumstances, the life insurance policy can be used for funding retirement.

Single Premiums: This refers to buying a policy outright. It is very rare for an insurance policy to be obtained by paying just one premium. Of course the payment is going to be quite large. In these cases, loans and benefits are available for the insured to use immediately, with benefits growing over time due to the investment.

Split Dollar Agreement: This is when an employer places a policy on an employee. The employer will receive either the cash value or their premiums on the policy, whichever is greater. The remaining funds will go to the beneficiary.

It is hard enough trying to decide between term and whole life insurance.  If you choose whole life insurance there will be even more decisions that you have to make.  Whole life insurance is not just coverage to protect your family in the event of your disability or death.  Most whole life insurance policies are investment vehicles as well that allow you to accumulate cash value in your policy to be used in the future.  Some of these policies even pay dividends.

Here is a brief breakdown of the different whole life insurance policy types that are currently available.  The two major whole life insurance categories are non-participating and participating.  Within these two main categories there are these whole life insurance sub-categories.

Level Premium
Life insurance premiums typically increase the older you get to cover the increased risk of you dying.  A level premium policy provides you with fixed premium payments for the entire life of the life insurance policy.  You will pay higher premiums in the early years than you would if you had a traditional whole life policy.  The extra premium cost, including the interest earned on the excess, will help to make up later on when the amount you are paying for your premium is less than the yearly cost for your insurance.  Your insurer invests the extra premium amount which adds to the cash value on your policy.

Limited Payment
On a regular whole life policy, you pay premiums for your entire life or for as long as you want the policy to be valid.  A limited payment policy offers coverage for your whole life but only requires a limited number of policy payments.

Because you will not be paying for premiums for your entire life, the amount that you do pay will be higher.  However, this option can be a good one if you want to make sure you have coverage later in life without having to afford or pay the premiums then.  A limited payment premium can be based on a certain number of fixed years, for example 10 years, or it could be based on your age such as paying premiums until the age of 65.

Single Premium
A single premium policy is a limited payment policy taken to the extremes.  You pay for the entire policy in one installment when the policy is issued.  Because the amount paid on the premium will be quite substantial, the policy will have immediate loan and cash value, so it is usually considered to be an investment.

Indeterminate Premium
This type of policy may also be referred to as an adjustable premium.  It requires that you pay premium payments for your entire life or for as long as you want the policy to be valid.  Your premium payments are usually less during the early years due to the fact that your current premium is based on your life insurance company’s estimate of your earnings, expenses and mortality.  The cost of the premium changes as these estimates change.  An indeterminate premium policy will state a maximum premium that can’t be exceeded over the policy’s life.

When it comes to whole life insurance, there are seven different types and each type is different from the others.  Two forms of whole life insurance are very different and may have an impact on how life insurance will work for you.

Whole life insurance means just what is implied by the name, it is insurance that lasts for your whole life.  It comes with a minimum cash value that is guaranteed as well as growth that gets included into the insurance policy.  The greatest advantage that whole life insurance policies come with is the guaranteed death benefit.  They also come with guaranteed cash values, annual and fixed premiums, and cash values that are accessible.

The drawback to whole life insurance is in the fact that the premiums aren’t flexible.  In addition, the internal rates of return really aren’t all that competitive compared with other types of savings opportunities.  It is very important to keep in mind that although whole life insurance can be either participating or non-participating, not every insurance company will offer both of these forms of whole life insurance, or any of the other types either.  It is very important that you check with your insurance company to find out what types of whole life insurance they are offer.  If you go through an insurance broker or agent, they can help your find an insurance company that offers the kind of whole life insurance that you are looking for.

Non-participating life insurance is not very flexible.  All the determinations are made at the time the policy is issued and then most things can’t be changed.  The premiums, death benefits, and cash surrender value are determined at the time that you set the policy up.  Once you have been issued your policy you won’t be able to make changes.

However, what this also means is that your insurance company takes the risk of the policy’s performance as compared to actuarial estimates.  It is actuaries who determine what the risk levels are for the clients.  If the actuary underestimates future claims, the insurance company will have to make the difference up.  However, if the actuarial estimates are too high, the insurance company will get to keep that difference.  The actuaries most likely aim high when it comes to their risk estimates so that the chances that the insurance company will have to pay when the estimate is too low are significantly lowered.

With participating whole life insurance, when actuarial estimates are too high, the insurance company will share its profits with the policy holders.  The more success the insurance company has the more profit and surplus there will be.  The insurance company’s best interest is served when  they aim high so that they are able to share profits with their policy holders.  However, actuaries are actually very adept and their estimates are usually dead on.

In summary, the choice of which type of whole life insurance you choose is up to you, but is one that you shouldn’t  take light because your future could very well depend on it.

Term life insurance basically means what is implied by its name: it is insurance whose coverage is valid for only a certain amount of time that is outlined in the insurance policy.  Whole life insurance also basically means what the name implies: it is insurance whose coverage is for the entire duration of an individual’s life and pays out upon the death of the covered individual.  When it comes to term life insurance, only about two percent of these policies pay out a death benefit, which makes them more lucrative for insurance companies and less expensive for individuals who are looking for this kind of insurance.

It can be a difficult decision to make for people who want to have insurance.  The first question you should ask yourself is, why do I need insurance?  If you have a spouse who doesn’t  have a high earning potential and young children, then term insurance might be the best answer to help get your children through college.  If you work under dangerous conditions, then term insurance might be a better option than whole life insurance.

For families who have young children, income needs are lower once the children have finished college.  The expense of paying for college is over once they have finished school.

Working under dangerous conditions where you could face work place death on a regular basis is another short term need when it comes to life insurance and you might be able to obtain term life insurance for a period of five years or so until you are able to change jobs or move up the job ladders into a position that isn’t as dangerous.

Term life insurance does offer some types of flexibility that is not provided with whole life insurance.  Term life insurance is a lot less expensive than whole life insurance is.  And for individuals and families with short needs, term life insurance is a better option.  It is very true that whole life insurance offers a guaranteed payout and is basically a savings account that will mature and be paid out to your beneficiary at the time of your death.  By the time the payout happens,  you will have already paid the death benefit amount and probably then some to the insurance company.  When it comes to term life insurance, this may not be the case and you may have only paid only a fraction of what the death benefit payout is over the policy term.  If you pass away, your beneficiary will receive the death benefit which will probably end up being a lot more money than you had paid in premium costs.

Whole life and term life insurance policies both provide us with a safety net.  It gives us the knowledge of knowing that when or if we die that our loved ones will be provided for.  It is a way for us to take care of our loved ones even after we have died.  The ultimate amount of savings that you will get with whole life insurance may not be worth it once you start comparing it with other types of available savings programs.  When it comes to term life insurance, you pay for premiums to your insurance company for a service that you might not ever use or that your family might not ever benefit from.

If you are on a limited budget, then term life insurance is probably your best option.  If you happen to have a need for life insurance that is short term and immediate, then again term life insurance is probably a good option and whole life insurance will waste your money and time.

If you happen to be single right now you may not think that life insurance applies to your life at the moment.  However, if something should ever happen to you there will be someone who will be burdened, either financially or in some other way, with being responsible for your funeral.  Additionally, life insurance is one of those things that follows you throughout your life, so the earlier you are able to get it the better off you will be later.  Let’s examine the reasons why life insurance really can be a good idea for you, and also how you can choose between term life and whole life insurance.

If you buy an insurance policy now, you can lock the rate in for the life of the policy (or in the case of whole life insurance, your own lifetime).  What this means is that you will pay the rates of a healthy twenty year old (or whatever age you are now) for the policy’s duration no matter how sick or old you may become.  Life insurance is a  great investment to obtain now so that later when you aren’t a swinging single anymore you will have have already taken care of it.

When you do get ready to settle down and have a family you will already have protection in place for your family.  In the unfortunate event that you should die young, your partner, parents or some other relative will have means for paying for your funeral, which can end up being a heavy burden.  Life insurance is a great investment, and the younger you happen to be the better the investment will be.  In terms of investment, a whole life insurance policy will also earn a cash value that you will be able to borrow against if you ever need it.  You will also have the ability to cancel the policy and withdraw your cash value in the form of a lump sum.

So now that you have a better understanding of why life insurance is really a good idea even for single people, the next question is what type of investment or insurance should you get?  If you do not have dependents, usually whole life insurance is the best best.  Term life insurance is better for helping to defer risks of a loan like on a mortgage or car or for additional coverage when your children are young.  Since you don’t have the concern about passing a financial burden onto your spouse yet, you probably don’t have a need for term life insurance.

On the other hand, whole life insurance will help to pay for your funeral expenses and will last for your entire life provided you make your premium  payments.  Over time you can add on term life insurance to take care of those theoretical children and spouse you might have some day, but still have whole life insurance that you lock in now to get a great rate that will cover you into your golden years and retirement.

If you take responsibility now and take care of your future, in a few years you will be thanking your lucky stars when it’s time for you to start a new way of living.  You will be relieved that you had the foresight and took the time for taking care of business when you were young to give you coverage that will last for your entire life.  Congratulations on you making a great decision.

While it is true that you can take loans out against your policy for whole life insurance, there are alternative methods that you can tap into your policy without having to reduce your death benefit.  Depending on what the terms are on  your policy and your insurance company, you might have an option for withdrawing dividends on an annual basis or to reinvest them back into your policy which raises the death benefit.

The first step in learning how to use your dividends is understanding the terminology that is found in your life insurance policy.

Dividends are the funds that are earned by your insurance policy and distributed to you as the policy holder.  They work in a similar way that interest does, except that an insurance company doesn’t guarantee any return on investment or dividend.

Paid-up additions (PUAs) are bought with dividends that are earned during a particular year by the insurance policy.  In order to determine how many paid-up additions there are in your policy, you just subtract the listed death benefit from your statement from last year from the death benefit listed on your statement for this year.  The difference between the two is PUA amount that has been purchased during the last year.

Most insurance companies return PUAs and dividends automatically to your policy unless you exercise your option for cashing them out.  However, once you do make a change for withdrawing dividends out of your policy, then you can expect to get a check each year until you change your option.

To request that PUAs or dividends be cashed out you will need your most recent policy statement, your policy number, the amount of PUAs you have available, and your insurance company’s customer service phone number.

Contact your insurance company and tell the customer service representative that you want to change how your dividends are used and ask them to send them to you by check.  Another thing you can do is ask that they be used for paying your premiums or paying down any loan balances you may have against the policy.

PUAs and dividends are usually issued once every year, and usually it is on the anniversary date of your policy.  When you speak to the customer service representative they will probably be able to let you know how long it will take to receive the check and how to contact them just in case it doesn’t show up.  Be sure to write this down and keep a close watch on your mail box when it comes time for your check to arrive.

If in the future you want to change back to having dividends be absorbed by your insurance policy, you can contact your insurance company again after you wait a year.  Usually you will not be able to change this policy more than once a year.

PUAs that have been purchased with dividends as well as dividends are not taxable.  If you ask your insurance company to have them reinvested back into your policy, you will not be penalized.

If you make the election to withdraw your PUAs that have bought with dividends or your dividends, this money might be taxable.  You can get in touch with your accountant if you have questions about this potential tax liability.  Sometimes insurance companies will send you the instructions you need to report your exercised dividends on the proper place on your tax form.

For tax purposes, keep a copy of statements that come with the dividend checks.  You should keep this documentation for at least eight years to protect yourself in the event of an audit.

At any time there are several things that could potentially happen to an individual. Life by its very nature is unpredictable and can leave people feeling vulnerable and unbalanced. They are unsure of how things really are and often do not know how to cope when unexpected events occur in their life. It can be very stressful when these things happen. Just the fact that it comes unexpected can in itself be a problem, as people find they need to adjust as soon as possible to the misfortune. Many unexpected events have negative consequences and can be very inconvenient.

A sudden and unexpected death in one’s family is probably the absolute worst type of surprise of all. It is not only taxing emotionally but can cause the family financial burdens as well. However, it is possible for an individual to protect their family from this type of inconvenience. An individual can buy whole life insurance to protect his or her family from these types of financial problems that can result if he or she dies unexpectedly.

The term on a whole life insurance policy covers the rest of the insured person’s life. The policy provides financial security for family members who may suffer monetarily if the insured individual dies. There are several different ways that whole life insurance can be paid for. Normally a whole life insurance policy is paid on an annual basis. There are also different types of whole life insurance policies. In fact there are six different types:participating, non-participating, economic, indeterminate, single premium and limited pay.

There are some important differences between each of these different types of whole life insurance. With non-participating, all of the values that relate to the policy are determined when the policy is issued. What this means is that if for whatever reason the values should change during the life of the policy, the value that was agreed upon when the policy was issued would continue to be that value that was paid out.

With indeterminate whole life, the only difference is the premiums. What this means is that the premium amount may vary from year to year.

Limited pay whole life limits how many years that premiums must be paid. Insurance premiums usually must be paid every year for the life of policy or you may lose the policy along with the benefits and security that the policy brings. With a limited pay policy, the insured only has to pay premiums for a certain number of years that is agreed upon when the policy is issued. So in order words the insured may only have to pay premiums for, as an example, 20 years and the policy still remains active for the rest of their lifetime.

Whole life insurance can be a very good way to protect one’s family for an individual’s entire lifetime and after. It is important these days that people understand that they need to not only take care of themselves but their family members and loved ones as well.