Advantages of Whole Life Insurance

An introduction to Whole life insurance
Whole life insurance is also called as cash value insurance or permanent life insurance or straight life insurance. It provides coverage for the entire life as long as the premiums are being paid. These premiums are decided at a fixed rate. Further, the insurance company invests some part of the premiums and creates a savings account or cash value that gradually accrues and is tax deferred. This cash value can be withdrawn or borrowed. However, such a transaction can cause a decrease or cancellation in the death benefit. In case of the following four conditions, a whole life insurance may be purchased.

• it is possible to pay the premiums and get the required coverage
• the savings in the life insurance policy won't be required for minimum ten years
• the policy is affordable and has good rates
• there is a need of more tax deferred savings

Advantages of whole life insurance
Some of the major advantages are described below:

1 – Premium level
In term life insurance, the premium increases during renewal. In case of whole life insurance, the premium remains constant. It does not increase with time. Also, if dividends are used, the premiums that have to be paid are minimized.

2 – Death benefit
The death benefit does not decrease in case of whole life insurance. When demise occurs, this death benefit is not subjected to federal income taxes. As per the requirement, the death benefit can be accepted as a lump sum amount or a monthly income.

3 – Cash value
In contrast with other life insurance policies, the whole life insurance policy accrues usable cash. As the policy holder pays premiums, this cash goes on increasing. In case the policy is surrendered, the policy holder gets the cash values. This cash value is tax deferred.

4 – Dividends
A participating whole life insurance policy has a feature of dividends. These are received as cash. They can be used to minimize premiums, to generate interest or purchase a paid up additions.

Other advantages of whole life insurance

• the policy's guarantees a high degree of safety
• insurance of a lifetime
• generates tax deferred cash
• some withdrawals and loans are tax favored
• a non-participating whole life insurance has relatively less out-of-pocket premium payments
• in participating whole life insurance, the dividend can be used to purchase paid-up additional insurance and this results in increasing the face value of the coverage
• in limited payment whole life insurance, the premiums are paid for a limited number of years, while the coverage is for the entire lifetime
• in single premium whole life insurance, there is only one large premium and hence the policy has an immediate cash value
• in indeterminate premium whole life insurance, the premium is adjustable but never more than the maximum value stated in the policy
• the policy holder can borrow a loan using the cash value as collateral

Types of whole life insurance
In non-participating whole life insurance, there is a constant premium and face value for the complete life. The costs of this policy are fixed, but it does not pay any dividends.

A participating whole life insurance has a feature of paying dividends. These dividends are a consequence of favorable mortality, excess investment earnings and expense savings. However, it is not warranted that these dividends would be paid to the policy holder. They may be used for a variety of purposes.

The above mentioned two categories of whole life insurance have a variety of options like:

• level premium whole life insurance
• limited payment whole life insurance
• single premium whole life insurance
• indeterminate premium whole life insurance