You can purchase life insurance for different time periods and purposes. Term life insurance covers you for a set period of time, such as 20 years; when the term of the policy ends, the policy expires. Whole life insurance, on the other hand, covers you for your whole life, until you die, unless you cash out your policy or fail to meet your premium payment obligations. Whole life insurance, also known as cash value insurance, is available with various features and benefit levels that dictate the costs and value of the policy.
Identification
Whole life policies cover you for your entire life, and they include a savings element. In order to even out the premiums over your lifetime, whole life policies charge a relatively higher premium when you are young. This money accumulates in the policy, creating the cash value. If you don't withdraw any money, some policies reach a point where the accumulated cash covers the premiums, and you no longer have to make payments. Names for these policies include cash value, universal life, variable whole life, variable universal, single premium whole life and other similar policy names. Most cash value insurance options have the terms "whole life" or "universal life" in the name of the policy.
Types
There are two general types of whole life insurance policies. Traditional whole life policies establish premium rates using estimates of long-term expenses, your mortality estimate when you establish the policy, and anticipated interest rate earnings until the policy pays out. You can pay the premium on these policies, annually, semiannually, monthly or in one lump sum. These policies can provide dividends, adjustable premiums and loan options. The second type of cash value life insurance is an interest-sensitive whole life policy. These policies modify the underlying investments that fund the insurance benefits based on interest rate fluctuations and payout requirements. You can choose an interest-sensitive policy with payout and dividend adjustments, fluctuating values and loan options.
Function
Whole life insurance provides financial benefits to your designated recipients, such as family members, when you pass away. These funds can pay off debts, cover funeral expenses or help maintain income levels without your financial assistance. Whole life also acts as an investment vehicle, because you can withdraw the accumulated cash value in the form of a loan or as a predeath benefit if you become terminally ill.
Time Frame
You can establish whole life insurance policies at almost any point during your life, but the cost and value of the policy is related to your age. Generally, you pay lower premiums if you buy the policy when you are younger, because the anticipated time frame for your policy is longer.
Considerations
In order to buy a whole life policy, you will have to have a medical exam and answer questions about your health, lifestyle and financial status. Determine your life insurance goals and financial situation when selecting a whole life insurance policy. Discuss your options with a certified financial planner who can help you map out your monetary needs and life insurance coverage levels.
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