Whole life insurance policies are a type of life insurance policy that protects the policyholder as long as the person lives. Holders also get a tax-advantaged cash buildup called the Cash Value. With this, policyholders will earn a fixed interest rate throughout the policy.
Several whole life insurance policies exist, with each offering a specific tax benefit protection and certain drawbacks. You will discover in this article, just what these variations are and why you should go for one of them.
1. Participating vs. Non-Participating Whole Life Insurance Policy
There are two primary categories of whole life insurance viz: Participating whole life insurance policy and the Non-Participating whole life insurance policy. Both have to do with the dividends paid on the cash value involved in the policy.
When an insurance policy is said to be “participating,” it means that the policyholder will receive “dividends,” being a part of the profits made by the insurance company. By default, if your insurer had a profitable year and you have activated the cash value, you will receive this.
On the other hand, dividends are not paid for the non-participating insurance policy, even if the insurer had a profitable year. Your best option is to buy the stocks of these companies. In most cases, these insurers are publicly-traded, meaning that anyone can become a shareholder through its stocks.
The difference between the two is a thin line between profitability and growth. The participating whole life insurance offers dividends if the insurer makes profits. But the premiums paid on the cash value are higher than the non-participating.
2. Limited Payment Whole Life Insurance Policy
This is one of the best whole life insurance policies for seniors who don’t want to be burdened by premium payments as they age.
You only need to make a limited number of premium payments for a few years. The downside is that your premiums will be higher. But if you can afford it, go ahead and pay up on time. Then, you will have the rest of your policy in full force since you have made all necessary payments.
3. Single-Premium Whole Life Insurance Policy
Do you have the (financial) means to fund your policy at once? If so, go for the single-premium whole life insurance. It is one of the best policies with flexible payment features. You only need to make one bulk payment to cover the duration of the policy.
Benefits
The benefits of going for the single-premium whole life insurance policy include:
- No additional payments are required since you paid up at once.
- It is a viable way to do wealth transfer.
- The death benefit is tax-free, especially when you paid higher premiums at once.
- Enjoy higher death benefits when you pay more money in the form of premiums.
The downside to a single-premium whole life insurance policy is that it is costly. Policyholders may end up paying as high as $20,000 for a $100,000 death benefit.
4. Guaranteed Issue Whole Life Insurance Policy
Trying to save for your burial or funeral costs? It is a great idea to save your family the costs of laying you to rest when you pass away. Most policyholders interested in this go for the guaranteed whole life insurance policy.
What it Offers
This type of whole life policy provides mostly death benefits. However, costs attributed to the healthcare of the policyholder may also be factored in.
Who is it for?
The guaranteed issue whole life insurance is ideal for people above the age of 50. Also, it covers policyholders who are at risk of complex health issues.
The idea is to use a part of the death benefit to fund their bills or any medically-related debt they owe.
Application Process
This has to be one of the simplest whole life insurances for the elderly. Underwritings are rarely done and medical examinations are not needed. This is because the policy is meant to be simpler. Asking for that information may take a lot of time and in most cases, require more premiums.
What Does the Death Benefit Worth?
The death benefit is only used to pay for funeral expenses. As such, you shouldn’t expect much. The payout can be anywhere between $25,000 and $50,000 max.
5. Indeterminate Whole Life Insurance
This is a type of whole life insurance policy that is based on the insurer’s performance. The performance here is used to judge the premiums you are to pay as a policyholder.
How it Works
Here are two scenarios of how the indeterminate whole life insurance policy works:
Scenario A:
In this case, the insurer is performing poorly. Maybe, its stocks are not faring so well in the market. Or it has witnessed a reduction in the number of policyholders on its list. Either way, the performance of the company is dwindling.
As such and by design, the premiums payable by existing policyholders will be higher. Since this policy is judged by the company’s performance, you pay more.
Scenario B:
Our indeterminate whole life insurance insurer has its financial strength on a steady growth. That means that the company is thriving. You will pay lesser because the company doesn’t pay dividends. So, you would only pay lower premiums to make up for the dividends you wouldn’t get.
6. Variable Whole Life Insurance
There is no guaranteed cash value here. Instead of the insurer offering that, it allows the policyholders to have the say-so. For example, you are permitted to decide how to invest your cash value.
Investment Options
It is up to the insurer to provide a list of viable investment options in the market. It is then in your place to decide on the one to commit your cash value.
What to Expect
An increase in the investment vehicle you settled for means an increase in your cash value. The reverse is the case when the investment tanks.
Overall, you will pay higher management fees when you make more profits from your investment.
7. Children’s Whole Life Insurance Policy
As the name suggests, this is a type of whole life insurance policy for children. You can use this to provide secure health insurance for your kid(s).
When it is Necessary
It is best to go for children’s life insurance only when your child(ren) is at the risk of health challenges. With the policy, you will have enough funds to pay for treating the health condition.
Conclusion
Whole life insurance should be treated with all seriousness. The decision to prioritize one over the other depends on your needs. For example, it is best to go for a limited life insurance policy if you want to pay your premiums at once. But if you are looking to earn “passive income,” go for either participating life insurance policy or indeterminate whole life insurance.
