Whole Life Insurance Investment
Today we’re going to discuss the difference between Whole Life Insurance and Universal Life Insurance versus Term Life Insurance. Both Whole Life and Universal Life will give the policyholder more complete coverage than a Term Life plan.
Term Life premiums are usually less making it appear to be a great deal. Term Life insurance provides coverage of the policyholder for just a fixed period of time as stated in the policy contract which is generally 5, 10, 15 or 20 years and is renewable at a higher premium rate at the end of the term. A Term Life policy builds no cash value and only pays out if the policyholder dies during the specified term of the contract. Term Life plans are often used in conjunction with a Whole Life plan to protect a loan on a house, car or other high dollar item so the family is not burdened with extra expenses. Term Life is also called “temporary” insurance.
A Whole Life insurance plan provides the policyholder with the benefit of having a set annual premium, plus Whole Life offers a set death benefit for the life of the policyholder as long as the premiums are kept current. The cash value of a Whole Life policy is guaranteed to increase. Any increase in the cash value is income tax deferred. The policyholder is allowed to take a loan against a Whole Life policy. The loan is charged interest until it is paid back in. If the loan reduces the cash value, it is possible that the death benefit could be reduced until the loan is repaid. Whole life plans are also called “permanent” insurance.
Universal Life Insurance is another version of the Whole Life plan where the premiums are a little less and can be more flexible than the premiums of a regular Whole Life plan because the value is derived from being based on investments by the policyholder in the stock market and investments of a portion of the cash value by the insurance company in bonds, money market and mortgages. The return of investment goes back into the policyholder’s plan. As with the Whole Life policy, the cash value is income tax deferred. Universal Life policies also have a guaranteed interest rate which is normally somewhere around 4 percent. If the insurance company invests well, the interest paid into the policy may well go above the guaranteed 4 percent but will never go below that guaranteed amount. A downturn in the stock market could affect the value of a Universal Life policy.
Universal Life gives the policyholder more control than the Whole Life policy. The policyholder has two options known as Option A and Option B. Option A allows the policyholder to build up the cash value from which the death benefit is paid. This means the insurance company has responsibility for less. Option A generally has lower premiums. Option B pays the value listed in the initial contract plus any cash value accumulated over the years. The premium for Option B is usually higher because the insurance company has more responsibility toward the pay out. Most Universal Life policies provide a no-lapse guarantee as long as the policyholder pays the minimum contract premium. The policy can possibly stay in force to age 100 or possibly even to 120 continuing through investments. Premiums may be raised or lowered at the policyholder’s discretion as long as the cash value stays current within the policy contract limit.
Universal Life offers more flexibility as far as the premiums paid in and the death benefits paid out. However, a Whole Life plan has a more stable guarantee than either Universal Life or Term Life. Purchasing any insurance policy should be done at a relatively young age to keep the premiums low. If in doubt which plan is best for you, speak with a representative of the insurance company you choose to make sure your policy meets your and your family’s needs.
A Whole Life policy is a wise financial investment because of the stable guarantees and length of coverage. A Whole Life plan will always grow no matter the condition of the stock market or the economy. A Whole Life plan is not for a limited length of time and pays for the life of the policyholder as long as the premiums are kept current. Due to the guaranteed cash value at retirement age, retirees sometimes take a loan against their policy to get them through the rough times. This is done tax free and without penalty.
