CAPUT58

Whole Life Insurance is the most common type of permanent life insurance. It is designed to provide a permanent form of insurance coverage on the life of the insured as long as the renewal premiums are paid. The premium amount to be paid is usually level during the insured person’s lifetime. In addition, these policies accumulate cash values on a tax-deferred basis. The rate of return on whole life insurance cash values is dependent upon a number of factors including the results of an insurance company’s investment performance.

Where the policy has a profit-participating feature, the level premium may be reduced due to the presence of accumulated cash values. Insurers use the level premium system to price life insurance products so that the premium rate does not increase as the insured’s mortality rate increases due to older age. The payment of level premiums throughout the life of the insured enables the insurer to create a reserve fund from the excess premium collected. These are invested and accumulated in the insurance company in the form of policy reserves.

A life policy in force for at least three policy years would have an element of cash value which will increase over the years of continued premium payment. During the lifetime of the insured, the policy with cash values can be surrendered for an amount equivalent to its cash surrender value, if a need arises. If this happens, the protection also ceases. Sometimes a part of the cash value can be taken out as a policy loan, if there is a need for some emergency funds. Such a loan will attract interest and the interest rate will be determined by the insurer at that particular time. The proceeds are payable when premature death occurs or maturity at age 100 whichever comes first.

Purchasing a whole life policy at a young age allows an insured to enjoy lower premium besides securing an adequate life cover. However, it is undesirable for younger people with small children who cannot afford the high premiums during the early years of the policy.

If you like premiums that will remain fixed and predictable over time, you may want to consider a Whole Life Insurance policy. It provides certainty of a guaranteed amount of death benefit and a guaranteed rate of return on your cash values. Your premium amount is usually level during the insured person’s lifetime.

Whole life policies issued with profit participation shares in the divisible surplus or profits of the insurance company, and those issued without profit participation will not do so. Returns in the form of dividends are payments from savings resulting from mortality, expenses and investment returns, The premium for participating policy is usually higher than non-participating policies. In spite of this, participating policies are gaining popularity. Participating policies will carry higher cash values. It is also likely that premiums need not be paid throughout life, for this type of policies, which to many people, is an attractive feature.

Leave a Reply