What is whole life insurance?

Question

What is whole life insurance?

Answer 1

Simple answers are the best.

You pay til you die and your beneficiaries get the face value tax free.  Wealthy people use it as a means to leave tax-free money.  Poor people use it as a means to pay final expenses and as a way to leave a little $ to the little ones to grow on.  Everyone needs term ins to cover debts left from an untimely death and to leave some cash for the family.

Answer 2

Whole life is PERMANENT insurance that you are "buying."

Term life is TEMPORARY insurance that your are "renting."

If a person bought a whole life policy on a child, when the rates are the lowest, that premium payment would NEVER change (as long as you made no changes to the policy.)

If you were to buy the same amount of coverage on a child as a TERM policy - the rates would increase annually (or in given periods such as 5yr, 10yr, 20yr) until at some point, you wouldn't be able to make the monthly payments.

Good luck and I hope this helps!

Answer 3

Cash value life insurance vs Term insurance



What is life insurance? Life insurance is an insurance contract that pays your beneficiary (which are usually family members) a sum of money upon your death. Main reason why people purchase life insurance is to protect the family from financial loss, otherwise known as "income protection." There are currently two types of life insurance out there available to the public. One is known as "cash value" life insurance and the other is known as "term insurance." If you have life insurance right now, it is important that you read your policy. The information given in this blog comes from my life insurance text books and from experience of reading many of my client's life insurance policies.

What is cash value life insurance? It is a term policy to age 100 that contains a savings vehicle in it. Cash value comes in many forms, such as whole life, universal life, variable life, or a mixture of those words together such as variable universal life or universal whole life, etc. The advantages of having cash value life insurance is that you are protected until age 100, you can use the cash value anytime for any use such as paying your premiums, and interest on your cash value is tax-deferred.

The disadvantages of having cash value life insurance is that you are paying lots of premiums for low amount of coverage, no cash value is accumulated during first two years of the policy, rate of return is very low, and if you use any of the cash value, you will owe monthly interest on it. This interest does not go back into the cash value, but rather kept by the insurance company because the money you taken out of the cash value is treated as a loan. In many policies, if you were to die, your beneficiary will receive the face amount and all cash value will be kept by the insurance company. Keep in mind, if you use any of the cash value and you did not pay it back, this amount will be deducted from face amount upon your death.

Another disadvantage of cash value life insurance is that they are riddle with insurance fees. The most noticeable fee is the surrender charge. This is clearly stated in the policy of how much cash value you will get if you surrender the policy. Then there are fees you don't see such as administrative fees, policy fees, maintenance fees, and all these other operating fees. If your cash value life insurance is a variable policy, that means your cash value is invested in the stock market. Investments too have their own operating fees. If you combine investments and life insurance together, now you have so many different fees that eats away the returns on your investments.

You are probably asking, why would anyone buy this kind of life insurance? First reason is that many people do not understand how this policy works. Second reason is that people don't buy life insurance, they are sold on it. The agent who sells cash value life insurance does not care about you or your family. All he/she cares about is how much commissions he/she is getting paid and they going to use whatever deceptive sales tactic to make you buy it.

So, what is term insurance? It is the type of insurance that provides a level death benefit for life. Just like car insurance, if you don't pay your premiums, you will lose coverage. Advantages of having term insurance are: premiums are very low during the term, you have more flexibility to invest your money in a savings vehicle (hence the phrase, "buy term and invest the difference"), and if you were to die during the term, your beneficiary will get the face amount and all your investments. Another advantage is that you can change the amount of coverage without affecting your savings and vice versa. (In cash value life policies, you are stuck with paying into both.)

The disadvantage of term that while premium remain fix for certain amount of period (10, 15, 20, 25, 30, or 35 years), the premium will go up when it is time to renew. Majority of term policies provide renewable term coverage up to age 100. But there are some term policies that stop coverage after the level term expires because the insurance company wants you to convert it to whole life or universal life.

Why would people buy term insurance? First, premiums are very low and remain fix during the term. In the early stages of your adult life, you probably have lots of debt to pay off such as your mortgage, you probably have kids to support, and you probably don't have much money saved for retirement. So you need lots of insurance coverage to protect the family. As you get older, your kids are all grown up, your mortgage is or almost paid off, and you better have lots of money saved for retirement. As you get older, you probably won't need life insurance or need as much coverage as you did 20 to 30 years ago.

What happens when the level term expires? When the level term expires, you enter the phase of the contract called "Annual Renewable Term." That means you have the right to renew the term without having to provide proof of insurability. The premiums will go up every year or so (check the policy on how often the premiums goes up after the level term). Depending on your policy, you are usually given several options when the level term expires.

(1) You may convert it to a permanent whole life policy (which I don't recommend).

(2) You may exchange it to another level term (I recommend that you significantly lower your coverage amount to a minimum of $20,000). You may need to provide proof of insurability.

(3) You may refuse to pay the premiums to cancel the policy (if you do this, I highly recommend that you allocate the money toward your retirement).

(4) You can change the death benefit to the amount you really need. In most cases, the amount of coverage you need is usually lower than what you needed years ago. In fact, you probably won't need life insurance as long as you enough money saved.

If you have cash value life insurance right now and are probably pissed off about having it, you should figure out what you want to do. Do you want to cancel it or should you replace it with term? It all depends on your current needs. If you have a problem with or questions about your life insurance policy, don't call the agent to get your answers because an agent's job is to sell life insurance, so they won't say the bad things about your life policy. Call the company's phone number that is listed in your life policy (which is usually on the cover page).

If you are going to replace it with term, don't cancel your current life policy yet. First, you want to see if you qualify for term insurance, which you probably will if your health is not that bad. When you get your term policy, then you want to cancel your old life policy. There's a couple things you can do with your cash value. First thing you can do is that you can surrender it. You may have to pay surrender charges on it and you will owe income taxes on it, but at least you have choices on where you want to put this money. The second thing you can do (and is probably the best way to do it) is do a 1035 exchange, which moves the cash value into an annuity product or another cash value life insurance without any tax implications.

I have always sold term insurance and help clients invest their money 100% of the time. That way they are protecting the family's income for a low cost and at the same, building wealth for the future. It does not make any sense to bundle life insurance and savings together. Life insurance's main purpose is to protect your family's income in the event of your death, not as a way to build tax-deferred savings. Since term insurance is so inexpensive, I show clients on how to effectively build wealth. One way is to open an IRA, either Traditional or Roth. Money in an IRA grows tax-deferred. If they max out their contributions to an IRA, then they should put more money toward their 401(k) or 403(b) or whatever retirement plan they have at work. If they don't have an employer's retirement plan, then a variable annuity would be the next choice, not a cash value life policy.

If you are going to meet with your agent to go over your life policy, you want to record everything he says. That way you can review it with your attorney or send it to your state's insurance department to find out if he is telling the truth. If he is lying, you can take lots of legal action against him and his company.

Other facts:

What is a dividend in an insurance policy? It means that you are over paying your premiums and the life insurance is returning (or refunding) it as a dividend. Keep in mind, this is not the same as receiving dividends on mutual funds. Dividends in mutual funds are only paid out if profits are recognized that year, so shareholders will get a share of that dividend.

Getting separate insurance policies will cost you lots of money in the long run. Each policy cost about $100 to maintain each year. If you have multiple policies on yourself, you should immediately change your life insurance agent and probably the company as well. There is no reason why you should have more than one policy on yourself. It is best to add "riders" to the policy such as spouse rider and child rider. That way the whole family is protected under one policy.

Some of you seen the word, "unit" on TV commercials. A unit represents one-$1000 worth of coverage. I seen commercials for retire people where one unit cost $8.75/month. In your mind, you are thinking thats very cheap. If you do the math, you will find out that's very expensive! If you wanted $100,000 coverage, thats 100 units. 100 time 8.75 = $875.00/month you need to pay for life insurance. I have a 20 year term of $150,000 coverage when I was 23 years old and I pay less than $300/year for it.

All life

Answer 4

All life insurance is designed to protect a family against the financial burdens that accompany the premature death of a breadwinner. To understand whole life, you need to contrast it with term life. You pay a monthly premium with each. A term life policy will pay a death benefit in the event that you die during the specific time, or term, covered by the policy. A term life policy has a start date and an end date. If you die the day after the policy ends, the insurance company does not pay a death benefit. The premiums that you pay for a term life policy will be gone when the term is up.

A whole life policy covers your for your entire life. If you die the day after you take out the policy, you are covered. If you die in 20 years, you’re covered. And if you die when you’re 80, you’re covered. In the mean time, the insurance company invests the money you pay in premiums, and some of the earnings are put into your policy in the form of cash value. The cash value builds over the years. At some point—when you are on a fixed income, for example—you can use your cash value to pay the premiums, keeping your policy in force. A whole life policy costs much more than a term life policy does, however. Good luck!

Answer 5

If you live anywhere near chicago, I can sit you down and explain it. You would realize what whole life is and then understand why term is so much better. [e-mail] if interested

Answer 6

Whole life is perhaps the most traditional type of permanent life insurance. It is interest-sensitive, permanent insurance under which coverage remains inforce until maturity generally age 100) as long as premiums are paid periodically as specified in the policy.

There are three elements associated with a whole life policy:

• Fixed premium (charge for the policy),

• Cash value (guaranteed accumulation), and

• Level death benefit (money payable to the beneficiary).

These three elements are guaranteed on whole life contracts and are contingent upon each other.  Cash value is important because it allows you to borrow against your policy or to surrender your policy for cash should the need arise.  Whole life insurance was originally designed to overcome the increasing cost of term insurance by spreading the required premium out over the insured’s lifetime. The insurer must consider the guaranteed mortality rate, the guaranteed interest rate, and expenses related to administering the business to calculate the required premium on a policy. In the early years of a whole life contract, the premiums exceed the actual cost of insurance. The amount of premium that exceeds the necessary mortality charges and the insurer’s

expenses is accumulated at guaranteed interest to create the guaranteed cash value.

Excess credits are a feature in a whole life product that represent a portion of the difference between the level of interest, expenses and mortality costs guaranteed in the contract, and the actual results anticipated by the Company in

these three areas. Excess credits are declared each policy anniversary and are applied to the contract on the following anniversary. These credits, as illustrated, are not guaranteed. Once earned, they may purchase additional amounts of paid-up insurance (PUA), or, if elected, can reduce out-of-pocket

premiums (RPO) or buy term insurance (TPO/ATR). The death benefit is the amount to be paid by the Insurance Company to the beneficiary upon the insured's death. A guaranteed, level death benefit is provided in the contract as long as premiums are paid. The pure protection, or risk amount for the insurance company is offset by the amount of cash value in the policy at the time of death. A different way to say this is that the insurance company’s net amount of risk is equal to the death benefit payable less the cash value.

Benefits: Whole life insurance serves both immediate and long range needs through guaranteed cash value and death benefit protection, assuming premium payments are made in cash to contract maturity. Non-guaranteed credits may

help to maximize the growth of policy cash values and death benefit and provide additional flexibility in design. Considerations Premium payments are contractual and required each year. If payments are not made either out-of-pocket or through excess policy values during the specified

timeframe, the policy lapses, which may cause an adverse taxable event, and coverage ceases.

Answer 7

A rip off.

The only one whole life will benefit is the agent and the company that sold it to you.  Whole life is sold as a life insurance and a savings account for your retirement.  What they don't tell you is if you die, the company keeps your savings.  Whole life is disguised under several different names, whole life, universal life, variable universal life,etc and they are all the same thing.   Buy term insurance and start your own savings for retirement in a 401k, a Roth account or an IRA.  Look for simple term, not annual renewable term the rates will go up each year.

Answer 8

Whole life insurance is to protect the dependants on you if in case of un certain death ,{ which is beyond our control may be it natural or accidental death} if you take a term insurance or a money back plan or a endowment plan they cover for fixed term like 10/15/20/30 years in term insurance amax 5 age or few till 60 years only if death occures afetr that particular term your family will not get nay thing to cover financial  loss due to your sudden disapear...hence a whole life plan for limited period payment is good ....always

Example:-  i have taken a SBI life Unit plus -II ,where i invest 25k per year for 3 years later i will take back my investment ie 75K , how ever i will be cover from first date of my ploicy commencement to till 99 years of age for a sum of 12.5 lakhs in case of natural death and 18 lakhs in case of accidental death...if on my investment returns are more than 18 % per annum {actual now returns are average 69% p.a infuture it may or may not } i may get more money too on my investment..

Answer 9

There is a lot of good information on the Internet about insurance, and a lot of bad info, too.

     My opinion is that you will be better off looking for information on sites that are NOT owned by insurance agents and insurance companies. Agents are most often paid a commission for selling you a policy and they may sometimes recommend more insurance than you need or recommend one policy over another because it pays THEM better.

     I saw a lot of good information about Whole Life Insurance at about.com.  Their basic definition says "A whole life insurance policy covers you for your entire life, not just for a specific period such as term insurance. Your death benefit and premium in most cases will remain the same. Whole life insurance also builds cash value, which is a return on a portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw it and you can borrow against it."

     There are a lot of arguments for and against whole life. The more you understand BEFORE you contact an agent the better decision you will be able to make. And if you can't say "NO," bring a strong friend with you.

   Consumer Reports has a lot of great information at

http://www.consumerreports.org/cro/money...

They say "More insurance agents these days are also offering financial-planning services, which means they sell investments and will probably try to sell you whole-life or cash-value insurance, which is part insurance and part investment vehicle. A variation on this is “return of premium” insurance, which pays a benefit if you die or gives you back your premiums (without interest) if you are still alive when the policy expires--a setup that amounts to part insurance, part savings.

Cash-value insurance can provide both estate-planning and tax advantages for well-to-do people over 60. But for 20- to 50-year-olds, Consumer Reports has long recommended a term-life policy as the simplest, least-expensive way to insure against an untimely death.

“Every time I look at the rate of return of cash-value vs. term insurance, I’m not impressed,” says Glenn S. Daily, a fee-only life-insurance adviser in New York. He says insurers often overstate the rates of return promised on whole life.""

      I consult Consumer Reports for every major purchase I make and they have never let me down. Be sure you go there before deciding anything about insurance matters.

The third site I recommend is Yahoo's Personal Finance area. They have a good guide to making decisions about life insurance posted at

http://finance.yahoo.com/how-to-guide/in...

Good luck!