Whole Life Insurance – A Short Explanation

by Kurt Lawerence

Unlike term life insurance, whole life insurance policies are permanent. “Permanent” means there are no specific periods for the policy to be in effect. You purchase the policy, pay monthly premiums and have your policy for life. Term life policies require renewal at a higher cost or must be converted to a permanent policy when the term runs out.

While your whole life policy is in force — that is paid for and active — your premiums are locked in at one fixed price. This does not change. The amount you pay in to a whole life insurance policy builds cash value. This means that you make money on your policy. Depending on your choice, dividends may be sent to you directly or they can be applied to lower your monthly premiums. The money you make on a whole life insurance policy is exempt from taxes and will not be counted as income on your yearly income tax.

While your policy is in force, you can borrow against the face value or withdraw funds from it. If you have done this and you die before you replace the money, your beneficiaries will not receive the full amount for which you originally paid.

Flexibility is not part of a whole life insurance policy. The insurance company is in charge of investments; and the face value and premiums cannot be altered by your authorization. You do not have the option of lowering monthly premiums or increasing the face value of such a policy.

The benefits of whole life lie in the dividends you can make and in financial benefits to chosen beneficiaries. If you do not want to mess around with investments and do not care about raising the face value of your policy, then whole life insurance is the perfect choice for your busy lifestyle.

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