Whole Life Insurance Explained: The Top 7 Categories

There are many different types of life insurance – three main types in fact. Permanent life insurance is one of them. Whole life insurance falls under that category. In this article, you will find whole life insurance explained in full. At its heart, whole life insurance is a policy which remains in tact and in effect for, basically, your entire life. The only way this type of insurance can be canceled is if the policy lapses. Your insurance provider cannot cancel your policy unless it is discovered that you put fraudulent information on your application.

Generally, you have to pay a premium every year that you have your whole life insurance policy. These premiums are level. The policy itself includes a table of monetary value. You are guaranteed to have death benefits with whole life insurance. You are also guaranteed to have cash values and steady premiums. Moreover, the total value will not be reduced by such things as mortality and expense fees.

Another thing about premiums: with pretty much any whole life policy, they are paid for the entire duration of the policy’s life. The time when these premiums are due varies from one type to the other. With some policies, you pay every year. With others, you pay every set number of years. Usually the premiums are not large. However, when you pay every ten or twenty years, then you may have to pay a large premium when you set up the policy in the first place. When purchasing a whole life policy, make sure the premium terms are explained clearly.

You can also access the value of your whole life insurance policy at any time. If you need the money, you can even pay back what you have taken out of the policy. You should always try to do that, because taking out loans can take away from the total amount that will eventually be paid to your beneficiary.

In order to fully understand whole life, you need to be aware of all the different policies which fall into this category. For the most part there are six main types of whole life: none participating; participating; indeterminate premium; economic; limited pay; and single premium. There is a relatively new seventh category, called interest sensitive whole life insurance.

Non participating whole life insurance is often considered inflexible. This is because everything from the death benefits to the available values for cash surrender to the premiums are set when the policy is initially issued. They exist that way for the entire life of the policy. They cannot be changed after the policy has been issued. Basically, all this means is that the insurance provider takes on all of the risks for future happenings. That means that if what the policy estimated in terms of cash values, et cetera, comes up short, the insurance provider will make up the difference. However it also means that if the policy holder or beneficiary does not end up needing the entire value of the policy, the insurance provider will get to keep what is left.

A participating whole life insurance policy is not quite the opposite of non participating, as one might expect. Succinctly, the insurance provider and the policy holder share the profits and the excess. The dividends will be higher if the provider performs well.

An indeterminate premium whole life policy is more closely related to a non participating policy. The difference here is that the premiums are not necessarily the same from one year to the next. However, there is a limit on how high the premium can go, and it will never exceed that limit. The overall limit is set in the policy when it is issued. You definitely need to have this type of whole life insurance explained in its entirety, especially as it compares to non participating policy.

An economic policy is a sort of combination between participating insurance and term life insurance. A portion of the dividends in this policy buys any additional term insurance. Usually, this makes for a much higher death benefit, but this is at the price of a long term monetary value. One of the disadvantages of economic whole life insurance is that, some years, the dividends may be lower than the estimates, which can bring down the eventual total of the death benefits.

Again, a limited pay whole life insurance policy is comparable to a participating one. Here, however, in lieu of paying premiums every year for the duration of the life of the policy (or policy holder), you only have to pay them every certain number of years, such as every ten or twenty. This type of policy can also be arranged so that it is paid off when you are a certain age, like 65. Limited pay policies will be in effect for your entire life. In generally, you have to pay more up front for this type of policy, because there has to be time to build up a sufficient cash value.

Single premium policies are a lot like limited pay policies. Again, you have to pay one large sum when you open the policy. The real difference is that you frequently also have to make payments during the first years that the policy is in tact, especially if you cash in the policy.

Lastly, interest sensitive whole life insurance policies are, as stated, a recent addition. It is also called an excess interest policy or a current assumption policy. Interest sensitive coverage is a combination of whole life and universal life insurance. In lieu of dividends being used to build up monetary value, the interest is used to do so. The death benefits for this type of policy are in effect for the policy holder’s entire life. As is the case with universal life insurance, interest sensitive whole life insurance may have fluctuated premiums. However, again, they will never be higher than the maximum amount specified in the policy itself.

As you may have noticed, there are a lot of similarities between a lot of these policies. As a result of that fact, it is incredibly important to have each type of whole life insurance explained to you completely before you make your final decision. Life insurance is important. In order to get the best possible policy, you have to know exactly what you are getting.