The Brighter Side of Life Insurance Policies

Whole life insurance, on the other hand, is a policy which would last throughout the holder’s lifetime and is often bundled with a cash value which will continue to build. The idea of mortality, and that of your own, sounds extremely morbid. However, we’ll inevitably bite the dust although when remains an uncertainty. A person who ponders on this subject will definitely think about his or her dependents and what will happen to them. Life insurance is a comforting answer to this dilemma.

Whole Life vs Term Life

There are two types of life insurance which individuals can choose to purchase – whole life and term. Historically, only term life insurance policies were offered which only covers premature death. Basically, a person takes out a term insurance and pays premiums for a specified number of years ranging from 10 to 30. Policy holders can only benefit from term insurance if they die before the policy expires. While term life insurance premiums are less costly compared to whole life insurance, in retrospect, policy holders weren’t happy that after paying premiums for years, they’ll get nothing if they survive the entire policy period.

Up until it equals the death benefit upon the time of the policy’s maturation. This would mean that whole life insurance premiums are more expensive compared with term life insurance policies.

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What is Whole Life Insurance?

Given the entire rationale behind whole life insurance, this type of insurance gives policy holders the added benefit of forfeiting the death benefit in order to borrow the cash value. The holder will be able to get back the cash value and the interest it had accrued.

But because the insurance company basically invests the premium holders pay in order for the cash value to appreciate, this can make any average reasonable person hesitant. What if the investments do not fare well or the company experiences a not so healthy number of death claims? In order to ease the doubts of individuals who want to purchase life insurance policies, insurance companies often issue guarantees that a holder’s cash value will continue to increase despite the aforementioned factors.

So how will policy holders be able to take in their dividends? There are three options: the holder may choose to receive a cheque from the company, use the dividends to reduce the cost of premiums or they may be reinvested so that the cash value and death benefit can increase substantially at a shorter period of time. But what is really so tempting about whole life policy is the fact that cash values can accrue interest tax-deferred and income taxes only become applicable when the amount goes beyond the total premium outlay.