Top Whole Life Insurance

The top whole life insurance questions usually revolve around the length of the policy. A whole life policy is a permanent policy that is designed to cover the policyholder for his or her whole life. As long as the premiums are paid as scheduled, a whole life plan remains in effect until it matures. A mature policy is defined as one for which the death benefit has been paid to the beneficiary or one that has been surrendered. Like all permanent insurance policies, whole life policies include a cash-building investment account. Some of the premium, whether paid each month, quarter or year, is applied to the cost of providing the insurance. The balance is credited to the cash account.

Whole life premiums are almost always higher than term insurance premiums, especially in the early years of the policy. A whole life policy, however, especially one that is acquired in young adulthood, is usually much more cost effective than a renewed term policy.

Unlike term life insurance plans, most whole life insurance plans allow for level premiums. This is because most people find it easier to budget for their insurance needs when the premiums are level and fixed for the duration of the plan. What changes over time, however, are the dollar amounts applied toward the insurance portion of the contract and the dollar amounts applied toward the investment account. As the insured gets older, the amount applied toward the insurance increases because the probability of death increases.

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Top Whole Life Insurance Policies

The top whole life policies balance the amount of premium, the amount of the death benefit and the amount of the return. A policyholder can choose among six types of whole life policies:

Whole Life Participating Policy

A participating whole life policy credits a dividend to the cash account. The dividend is the policyholder’s share of the insurance company’s profit. A participating whole life policyholder is considered to be a shareholder of the insurance company as if he or she owned stock in the company. Depending on how the company chooses to distribute the dividend, the owner of the policy can usually take the distribution as cash, apply it toward the premium or purchase additional coverage. As no company, insurance companies included, would ever be able to guarantee profits, distribution of a dividend is not guaranteed from year to year.

Whole Life Non-Participating Policy

A non-participating whole life policy does not participate in the dividend. Because the insurance company does not have to credit the account with the dividend, premiums for a non-participating policy are not as much as they are for a participating policy.

Level Premium Whole Life Policy

A policy with a level premium option offers the policyholder premiums that do not change as long as the policy is in force. Depending on the age and health of the policy owner at the time of issue, the premium may be much higher than another type of permanent insurance during the first years after the policy begins. But premiums can be lower than other policies in later years. Because the premium remains level for the life of the insured, it reflects an average cost to insure the individual over time.

Limited Payment Whole Life Policy

The limited payment whole life option lets the policyholder pay the premium for a limited number of years rather than for his or her entire life. Similar to a policy with a level premium, the amount of the premium is level but higher. This option is usually chosen by those who need to have whole life coverage, but do not want to make premium payments for life.

Single Premium Whole Life Policy

This kind of whole life policy is paid for with a one payment. Unlike other whole life plans, a single premium policy has immediate equity. It can be borrowed against or used as collateral for a secured loan. Single premium whole life policies are often selected as investment vehicles for estate planning purposes or additional retirement savings. They are also sometimes bought instead of immediate annuities as all growth is tax-deferred and any payments made back to the policyholder are usually exempt from federal income tax.

Intermediate Premium Whole Life Policy

An intermediate whole life policy offers flexible premium payments. The premiums are adjusted every year depending on the insurance company’s costs to manage and maintain the policy. The management fee is usually called the “earning, mortality and expense” fee. The insurance company estimates the expenses and includes them in the premium charged to the owner of the policy. Since the premium amounts can be somewhat volatile, most insurance companies guarantee an amount above which the premium cannot rise.

Top Whole Life Insurance Borrowing and Retirement Strategies

As long as a whole life policyholder has enough cash in the account, he or she can borrow against it or use the policy as collateral for a mortgage, business purchase or other debt. Policyholders should always be sure, however, to read the contract very carefully as each insurance company will have different rules and regulations in place regarding the rate of the loan and the terms for repaying it.

The availability of cash is very useful should a policyholder lose his or her job, suffer from a long-term illness or otherwise need cash. In extreme cases, a whole life policyholder also has the option of surrendering the policy for cash. Depending on what point in the contract he or she surrenders it, the insurance company may not pay the entire accrued value of the account.

Top whole life insurance companies also sell whole life policies as an alternative to immediate annuities and as additional retirement savings vehicles. Because earnings grow tax-deferred, the earnings credited to a whole life account often grow faster than a regular savings account, as dollars are not deducted to pay taxes. Further, those who have maxed out the maximum allowed in other defined contribution plans often find whole life insurance policies an excellent way to accumulate more money for retirement.

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