subject: The Benefits Of A Whole Life Insurance Policy [print this page] Whole life insurance policies typically have higher premiums than fixed term policies, but should be given equal consideration nevertheless. Their main benefit is a guaranteed payout at the time of death, no matter when it occurs. However, they also offer financial advantages and flexibility that could make them end up costing less than term in the long run.
When you take out a standard whole life policy, the premiums are invested in a fund. If the fund performs as predicted, their value will increase. The growth of the fund is used to subsidize the cost of premiums and keep them from rising as you age. Some policies offer guaranteed fixed-price premiums. Others link premiums to the fund's performance, in which case they may go up or down,
Many whole life policies earn dividends if the fund sufficiently increases in value. In some cases, you can elect to receive them in the form of an annual cash payment. Dividends can be used to reduce, or, in some lucky cases, eliminate premiums over the course of a year. They can be used to purchase add-ons to the policy. Alternatively, they can be left in the fund to accumulate interest.
Whole life policies have a cash value which rises as you pay in premiums. If you ever find yourself in need this money, you don't have to die to access it. You can borrow an amount up to the cash value at a nominal interest rate and pay it back into the policy at your convenience. You can also surrender the policy in exchange for its cash value. This makes can make financial sense if your accumulated cash value is large enough to pay off your mortgage and the value of your home is greater than the value of your death benefit.
The tax laws regarding investing in insurance policies vary from country to country. However, in most instances, there is government incentive in the form of tax relief or tax deferral. The cash value is typically not subject to taxation as it accumulates. The death benefit is usually only taxed as part of the policy holder's estate.
Different companies offer various modifications on whole life insurance policies. Price comparisons websites make it easy to view a wide range of options. You can choose a policy based on the level of premiums you wish to pay, the level of risk you wish your fund to be subjected to and the amount of guaranteed death benefit you require.
by: Lena Shattuck
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