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.
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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.
