It can be a little difficult, especially at first, to sort out all of the whole life insurance policy options. While a life insurance agent can help with the details, the fact of the matter is that it can be useful to go in armed with a little bit of knowledge to begin with.
Once you’ve decided between term and whole life insurance policies, you will also need to decide on what type of whole life insurance policy you want to get. Here are some of the main types of whole life insurance policies that are typically offered to consumers:
Participating Whole Life
This type of whole life insurance policy pays you dividends. These dividends come from excess earnings on the investments that the company makes, as well as savings on expenses and mortality rates that favor the company. These dividends may be paid in a couple of different ways. They might be paid to you in cash, or they might be used for your premium payments. In addition, they might be left in order to accumulate, gaining interest as they go. In some cases, they may be used to increase the face value of the policy. Dividends aren’t guaranteed.
Non-Participating Whole Life
This type of whole life insurance policy has the same premium and the same face amount during the entire life of the policy. This locks in the cost of your life insurance policy, and has a relatively low premium. This type of policy will not pay any dividends.
In addition to being either non-participating or participating, your whole life insurance policy can vary in terms of how you pay for it.
Level Premium Whole Life
Some life insurance policies require you to make premium payments for your entire life. In the early days of the policy, the premium you pay will cover more than just the cost of your insurance protection. The extra goes toward the deficiency of premiums that will eventually occur as you grow older. The extra premiums create a cash value for the policy, and are held and invested.
Limited Pay Whole Life
This kind of whole life insurance policy will give you life insurance for your entire life, but only requires you to make payments for a specified amount of time. You can set a limited pay whole life policy for a number of years, such as 10 years. After those 10 years you can stop making payments but are still covered.
Single Premium Whole Life
This type of play is one where you make a single payment up front. The payment is large, and you never have to pay it again. It has an immediate cash value, and is in some ways more of an investment product than an insurance product.
Jonathan Simmons has been an experience life insurance adviser since 20 years. His area of expertise includes critical illness cover and life insurance comparison.