Life Insurance Blog

in Life Insurance,Universal Life Insurance,whole life insurance

Have you ever tried to read a life insurance illustration?  Often times they are so complicated that only a seasoned agent can understand them.    They have all the disclaimers on them about returns and typically you will see at least two columns of projections.

One column will be the guaranteed column, which will be the worst case scenario.  The other column is the assumption column.  This is usually based on the companies current dividend scale or some type of hypothetical return.    It is important to look at what guarantees are built in and to look at the companies historical results.   If you have a dividend paying whole life product, the dividends will go up and down.  The dividend is based on the companies success and the success will obviously fluctuate over a long period of time.   Most good mutual companies have never missed a dividend, but the amount of the dividend is the key.  If you are talking about a universal life, there is a bottom floor interest rate or return level in one column.  Many plans might guarantee like 3 or 4 percent as a worst case scenario.   The other side will be some hypothetical interest rate or market return.  This like the dividend is a total guess based on some historical data and future projections.

The key to reading an illustration is that it will give you some rough parameters.  Just remember that it will never play out exactly as illustrated.

in whole life insurance

Are your family members depending on your income? You can purchase a whole life insurance policy and secure the future of your family members. It is basically a contract between the policyholder and the insurance company. The policyholder purchases the policy and pays the premiums; in turn, the insurance company promises to pay the beneficiary a certain amount of money in the event of the policyholder’s death. 

How it differs from term life insurance 

A whole life insurance policy covers the policyholder for his/her entire life. There is no expiry date and the death benefits are received by the beneficiary only in the event of death of the policyholder. In case of term life insurance, the beneficiary is eligible to get the death benefits for a specific period. You may or may not renew the term life insurance policy after the term expires. 

When to purchase a whole life insurance 

Whole life insurance is a good choice when you want to get the coverage for your entire life. In addition to this, you may also opt for this insurance if you want to build up a cash value of your policy. 

Benefits offered by whole life insurance 

A whole life insurance policy offers a number of benefits that are listed below.

Interest accumulated on this life insurance policy is tax deferred until you withdraw from it.
You can take out a loan from a whole life insurance policy.
The premiums remain fixed throughout the policy term.
You can use the cash value of your policy to pay the premiums.
The beneficiary receives death benefits regardless of when the insured dies.
However, you need to pay a higher premium in order to insure your life through a whole life insurance policy. Therefore, before purchasing this insurance, it is advisable that you assess your financial condition and check whether or not you’ll be able to afford the premiums. If required, take help of an insurance agent to decide what type of life insurance is best suitable for you.

in whole life insurance

Regular vanilla whole life insurance has taken a beating from some in the media that profess that it is too expensive and that you should always buy term.   I agree that term is often the best solution for some clients at that given point in time, but having whole life can be powerful vehicle.  Many times to meet large insurance needs  our clients will buy a majority of term and buy a smaller portion of permanent insurance.   This may be the only affordable way for the time being to meet that large insurance need.

Term life insurance is like renting and the premiums are usually much less expensive than whole life at first.  What happens at the end of the level term is the premiums skyrocket through the roof and most people drop the policy at that point.  The advantage to whole life insurance is that you lock into a premium amount and it stays level forever.  When the level term ends and the premium is skyrocketing, the whole life keeps plugging along at the same level.  If you select a good mutual life insurance company that consistently pays a good dividend, then you will also have built significant cash values.   The cash values grow tax deferred and can be used to help finance things during your lifetime while you continue to have permanent insurance.   For example, you want to buy a business at age 42 and you have accumulated a cash value of $56,000.  The business is going to require an initial investment of $37,500.    You pull the 37.5 out of the whole life and the insurance company charges a loan interest rate.  Let’s say it is 6% they charge and you pay the loan back at 10% interest.  Not only are you paying yourself back, but you are making a 4% spread on the money creating a turbo charge effect on your policy.  Four years later, after paying the amortization schedule for the business, you borrow money from yourself again to buy a new car.  Of course you pay yourself back once more.

The whole life cash value is guaranteed to get better no matter what.  There are not many financial vehicles that you can say that for.

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