2010 was a much improved year for America's insurance industry after suffering through 2009, which was a terrible year. During the last few years, write offs in the insurance industry occurred in record amounts. Overall this helped to push insurance rates down. Tough competition and company consolidations were also prevalent, which helps reduce rates as well across the board in order to attract and keep customers. It appears at this point that the worst is behind us. Over the next several years consumers can expect to see life insuran[ read more » ]
Whole Life Insurance FAQ
Many people have questions about whole life insurance policies. Here are answers to some of the more frequently asked questions.
1. What are the differences between whole life and term insurance?
The main difference between whole life and term insurance is the amount of time that you are insured. Term life insurance only provides coverage for a fixed time period. You will need to renew the policy if you want to be covered after the time period expires. With whole life insurance, provided you pay your premiums on time and do not surrender your policy, you will be covered for your entire life.
2. Does whole life insurance cost more than term life insurance?
In the beginning whole life insurance premiums will be higher, but if you plan to keep your life insurance policy for life you will pay less overall for a whole life insurance policy than you would for term life insurance policies that you would need to continuously renew as you grew older.
3. What types of whole life policies are there?
The two major types of whole life insurance policies are participating and non-participating. Participating whole life policies pay out dividends. The dividends can be used to either reduce the amount you pay on your premium or paid out in cash. Another way dividends can be used is to purchase additional insurance coverage or increase the policy’s face amount. A non-participating policy has a fixed face amount and level premium that does not change. The advantage to this is that your cost is fixed and the premium payments are low. However, the disadvantage is that a non-participating policy does not pay out dividends.
4. When is a good time to buy a whole life insurance policy?
A whole life insurance policy is best to meet any long term goals you may have. You are able to build up cash value in your premiums which provides built-in savings for estate planning and other financial goals you may have. Whole life insurance should be considered when you are planning to keep the insurance for your entire life.
5. With a whole life policy, will I pay insurance premiums my entire life?
The traditional whole life policies do require premium payments throughout your entire life. However, there are different types of whole life insurance policies that can be paid off earlier. Some policies come with one time payments or with fixed payments over a certain time period that pay off the entire whole life policy. These types of policies do have higher premiums, but since you pay them off early you will not have to dip into your income when you are older and may be on a fixed income.
6. What is the difference between the face amount and cash value of a whole life insurance policy?
The face amount on the policy is the dollar amount of the benefit that is paid to your beneficiaries if you should die. The cash value of a whole life policy is the amount you will receive if you surrender your policy. The cash value increases over time as you pay your premiums. If you die before surrendering the policy your beneficiaries receive the face amount.
7. Can I surrender a whole life policy and receive the cash value?
You usually can, depending on the individual circumstances. The exact amount you will receive is calculated based on the current cash value of the policy minus any unpaid premiums or any outstanding loans you have.
8. Will I be able to borrow against my whole life insurance policy?
Yes, usually the owner of a whole life insurance policy can borrow against the cash value of the policy provided the policy has enough cash value to secure the loan.
9. Are there taxes on dividends, benefits, loans, and other types of income that come from whole life insurance policies?
Whole life insurance policies are considered investments. You generally will only pay taxes on dividend amounts that are greater than the amount of premiums you pay on the policy. The same is true for the cash value if you surrender. Please consult your tax advisor for more details.
10. What are the biggest drawbacks of whole life insurance policies?
The biggest drawbacks of whole life insurance polices are the premiums are higher and they are more complex and difficult to understand than term life insurance.