Whole Life Insurance
Whole life insurance gives death protection for as long as you live.
The most common type is called straight life or ordinary life
insurance, for which you pay the same premiums for as long as you
live. These premiums can be several times higher than you would pay
initially for the same amount of term insurance. But they are smaller
than the premiums you would eventually pay if you were to keep
renewing a term insurance policy until your later years.
Some whole life policies let you pay premiums for a shorter period
such as 20 years, or until age 65. Premiums for these policies are
higher than for ordinary life insurance since the premium payments
are squeezed into a shorter period.
Although you pay higher premiums, to begin with, for whole life
insurance than for term insurance, whole life insurance policies
develop cash values which you may have if you stop paying
premiums. You can generally either take the cash, or use it to buy
some continuing insurance protection. Technically speaking, these
values are called nonforfeiture benefits. This refers to
benefits you do not lose or forfeit when you stop paying
premiums. The amount of these benefits depends on the kind of policy
you have, its size, and how long you have owned it.
A policy with cash values may also be used as collateral for a loan.
If you borrow from the life insurance company, the rate of interest
is shown in your policy. Any money which you owe on a policy loan
would be deducted from the benefits if you were to die, or from the
cash value if you were to stop paying premiums.
Variable Life Insurance
Variable life insurance, provides permanent protection for you and
death benefits to your beneficiary upon your death. The value of the
death benefits may fluctuate up or down depending on the performance
of the investment portion of the policy. Most variable life insurance
policies guarantee that the death benefit will not fall below a
specified minimum, however, a minimum cash value is seldom
guaranteed. Variable is a form of whole life insurance and because of
investment risks it is also considered a securities contract and is
regulated as securities under the Federal Securities Laws and must be
sold with a prospectus.
Universal Life Insurance
Universal Life insurance is a variation of Whole Life. The insurance
part of the policy is separated from the investment portion of the
policy. The investment portion is invested in bonds and mortgages,
the investment portion of Universal Life is invested in money market
funds. The cash value portion of the policy is set up as an
accumulation fund. Investment income is credited to the accumulation
fund. The death benefit portion is paid for out of the accumulation
fund. Unlike Whole Life Insurance, the cash value of Universal Life
Insurance grows at a variable rate. Normally, there is a guaranteed
minimum interest rate applied to the policy. No matter how badly the
investments go by the insurance company, you are guaranteed a certain
minimal return on the cash portion. If the insurance company does
well with its investments, the interest return on the cash portion
Variable universal life insurance pays your beneficiary a death
benefit. The amount of the benefit is dependant on the success of
your investments. If the investments fail, there is a guaranteed
minimum death benefit paid to your beneficiary upon your death.
Variable universal gives you more control of the cash value account
portion of your policy than any other insurance type. A form of whole
life insurance, it has elements of both life insurance and a
securities contract. Because the policy owner assumes investment
risks, variable universal products are regulated as securities under
the Federal Securities Laws and must be sold with a prospectus.
Rates and coverage vary form state to state so shop around. Life
insurance is a long term product, make sure you get a plan that's
right for you. For more information and rates on life insurance visit
our specialist site below.