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Whole life insurance, as the name suggests, is insurance that is designed to last for your whole life.
It’s also sometimes called permanent insurance, and is different from term life insurance, which lasts for a specific period of time.
A whole life insurance policy has an annual premium that remains the same each year, according to the Massachusetts Office of Consumer Affairs and Business Regulation.
When you purchase the policy, you will be told what the premium will be, and as long as you pay that premium each year, your policy will remain in force until you die.
At that time, the insurance company will pay your beneficiary the death benefit that is defined in the policy.
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A whole life insurance policy includes a cash value component. The premium that you pay for your whole life insurance policy is more than the cost to insure you, particularly in the first few years. This additional money is what lets the cash value build up in your policy.
There are several things you can do with the cash value in your whole life insurance policy. You can leave it there, and once it reaches a certain level, it will increase the death benefit of your policy. Your beneficiary will actually get more than the face amount of the policy when you die if there is sufficient cash value in the policy.
You can also borrow against the cash value in your policy. Loans against whole life insurance policies often carry a reasonable interest rate, and you may be able to pay back the loan at your convenience, rather than in accordance with a strict schedule.
Just beware that an outstanding loan will reduce the death benefit of your policy.
You can also withdraw cash from the policy, or receive the cash if you surrender the policy.
If you have a whole life insurance policy that you no longer need, you can cancel the policy and receive the cash value, sometimes called the surrender value.
This is different from a term life insurance policy, for which you receive nothing if the policy ends.
Many whole life insurance policies pay dividends. The amount of the dividend is determined each year by the company issuing the policy, and it is based on how well the company performed the previous year.
The amount of the dividend can vary, and the company is not obligated to pay a dividend in any given year.
You have several choices as to what you can do with the dividends from your policy. You can receive them in cash, you can use them to offset part of the premium payment or you can purchase additional insurance with them.
If you purchase additional insurance with your dividends, it will increase your death benefit beyond the face value of the policy when you originally purchased it.
The death benefit is the amount of money that your beneficiary will receive when you die. A whole life policy has a face value, but the death benefit could be higher or lower than the face value due to a few different factors.
Since a whole life policy builds cash value, your policy may be worth more than the death benefit when you die. You should receive a statement each year showing the current death benefit of the policy.
If you used your dividends to purchase additional insurance, known as paid up additions, your death benefit will be higher than the face value of the policy. This information will also be shown on your annual statement.
If your whole life insurance policy has cash value, you can usually take out a loan against the cash value.
If you borrow against your policy, your death benefit will be reduced by the amount of any outstanding loan at the time you die.
For example, if you have a whole life insurance policy with a death benefit of $100,000, and you take out a loan of $10,000, your beneficiary will receive $90,000 when you die.
The cost of whole life insurance is higher than other kinds of life insurance, including term life insurance and universal life insurance. This is because the policy is designed to provide insurance coverage for your entire life, and because the policy builds cash value.
You may be able to lower your cost for whole life insurance. Keep these things in mind when you are considering purchasing whole life insurance.
- The younger you are, the less you pay. Buying whole life insurance when you are young will result in lower premiums. Your policy will also have more time to build cash value.
- Your health matters. If you don’t smoke, drink in moderation and maintain a healthy weight, your premiums will be lower. If your medical history is good, you will pay less for a policy than someone who has a chronic medical condition.
- Comparing policies from different companies will help ensure that you are getting the best price for your whole life insurance policy.
- Remember that the premiums for a whole life insurance policy are fixed for the life of the policy. Once the policy is issued, you will never need to prove your insurability again.
Purchasing a Whole Life Insurance Policy
Here’s what you can expect when you purchase a whole life insurance policy.
You will have to fill out an application that will ask you questions about your lifestyle, your medical history and your family history. This information will be used to determine your premium.
You will be asked to give the insurance company permission to obtain your medical records from your doctor. The company will seek information on any medications you take, any medical conditions you have, and any diseases or surgeries you have had in the past.
You will need to decide how much insurance you want, and who your beneficiaries will be. You can change your beneficiary or beneficiaries at any time.
You will be asked if you want to purchase additional features for your policy, known as riders.
These will add benefits to your policy, and some of them will also increase the cost. Make sure you understand any riders that are offered and how much they cost.
You will usually have the option to pay the first policy premium at the time you complete the application. If you do this, you will be covered for accidental death immediately, even before your application has been approved.
Once your application has been completed, it will be submitted to the insurance company for underwriting. Underwriting is simply the process of determining your risk in order to determine your premium.
The insurance company will consider the information on your application and your medical records to try to assign you a rating which will determine how much your policy will cost.
The insurance company may also require a paramedical exam. They will send a nurse or other medical professional to your home to take your height, weight, and blood pressure, as well as samples of your blood and urine.
This information will be used to determine your health at the present time, and this will be factored in to your underwriting decision as well.
Once the insurance company has all of this information, they will assign you a rating and determine your premium. The insurance company will then issue the policy.
You have a period of time after the policy is issued to return it if you decide you don’t want it. This is known as the ‘free look’ period. It varies by state, but it is often at least ten days. If you decline the policy during this time, you will receive a refund of any premium that you have paid.
Purchasing a whole life insurance policy is an important decision and choosing the right policy will protect your family and give you peace of mind. Use the FREE quote tool below to start your search now!