Today I'm going to talk about some of the basic info of whole life policies. A good characteristic of this type of policy is it will provide you coverage for your entire life. The death benefit is also free, and these policies have a savings component in which interest accrues. The interest these policies make is also tax deferred. Now, for those of you who don't understand what tax deferred it, I'll explain it. Tax deferred is investment earnings, like a whole life policy, which accumulates tax free as well.
Most of these policies have a level premium, meaning your payment each month will never change the whole time you have the policy. You can pay extra on your payment each month if you want to build cash value. This will also help you buy extra coverage, and is called paid-up additions.
The cash value gives you a living benefit. This enables you to access the cash while you're living. You can request a withdrawal of funds, or get a loan against the policy. You can withdrawal funds tax free up to the premium you've already paid in. For example, you've paid in $10,000, you can withdraw the $10,000 tax free. If you withdraw more than the $10,000, you'll have to pay taxes on whatever is over the $10k.
Interest is charged on loans and the rates will vary depending on who your insurer is. If you make a withdrawal and die before repaying the loan in full, the unpaid balance will reduce the cash value of the policy. It can lessen the death benefit as well, as the unpaid balance will be subtracted from the death benefit.
You can get voluntary riders for an extra charge with theses policies. They secure the stated death benefit if you become critically/terminally ill, disabled, and can't make your premium payments. The two most common riders are the accidental death benefit and the waiver on premium riders.
Here are a couple of the main types of whole life policies that are categorized on how you pay your premiums. With a level payment, your premiums stay the same during the entire policy. This is the most common payment. Limited payments let you pay a limited number of payments and offers lower premiums than a standard policy in the first two-three years. The premium will be higher in the later years, which means it's more expensive in the long run.
Advantages of a whole life policy are they have lifetime coverage, a guaranteed death benefit, cash value, predictable premiums, and they are tax free.
It also comes with disadvantages as well, including, the cash value may grow slower than on other policies, it can be more expensive than term policies, you can't adjust the premium, and you have a limited ability to adjust the death benefit.
I hope this is informative and helps you understand a little more about whole life policies. Have a great day lovies!
DISCLAIMER: This is by no means everything you need to know about whole life insurance. I'm just giving you some of the basic information.
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