A Whole Life Insurance policy is a contract between the insurance company and the insured that is funded with level contributions that, in theory, would last a lifetime. The contracts also offer a “cash value” option that is designed to be a cash reserve that would build up over a life time to be the same amount as the total value of the contract; also known as the death benefit.
The way these whole life policies were designed is to either mature once the cash value was the same as the death benefit (usually at age 95 or 100) or upon the death of the insured. The only exception to this is if a portion or all of the cash value was extracted from the policy. At that point, as long as the payments were current and on time, the death benefit would equal the amount of the face value of the policy minus the cash taken out of the policy, penalties and any interest.
The insurance company, by guaranteeing the death benefit, assured the policy owner that the insurance coverage would be in force when the insured died. Of course there are certain elements that have to be met with every policy so make sure you meet with an agent that can tell you the provisions in your contract.
Upon the death of the insured, the cash value or death benefit would be paid out to the beneficiary in cash by the insurance company. While this seems to be very straightforward, there are several types of whole life insurance and it is up to you to receive as much information as possible to get the right one for you and your family.
A qualified agent can help you parse through these types that can include, non-participating, participating, indeterminate premium, economic, limited pay, single premium and interest sensitive (universal life).
Another thing most of us do not think about are the requirements for qualifying for a life insurance policy. Some of these will be health related and others might be financial. Without an agent to help you through this maze, you can get lost and end up with either too much or too little coverage; with the wrong type of insurance or; get turned down when you could have been covered under a different type or from a different insurance company.
The value an agent can bring to you when making the decision about taking out a life insurance policy that can cover you for life cannot be measured when it’s about you and your family. They will help you get coverage and navigate through all of the options.
Here are just a few things to think about when considering lifetime protection throughout a lifetime.
- Level premiums to age 95 or 100
- Tax-deferred growth of cash value
- Death benefits generally pass on income tax-free to your beneficiaries
- Cash values that can be accessed during the insured’s lifetime
- Eligible to earn dividends (dividends are not guaranteed)