Whole life insurance and its benefits in your life

Wang Yan
Wang Yan

Global Courant

Life insurance is a long-term life insurance and savings product. Whole life provides whole life coverage that financially protects the insured’s next of kin in the event of death. A lifelong policy remains in effect until the death of the insured. A lifelong policy can end early due to cancellation (surrender) or due to non-payment of premiums.

With a lifetime policy, the premiums paid typically remain constant and increase the cash value of the policy. The insurer’s death benefit and administration costs are taken directly from the cash value of the life insurance policy. The remainder is then invested by the insurance company in stocks, shares and/or bonds. The return on investment goes back into the present value. An excellent advantage of a lifetime policy is that the cash value is subject to tax deferral. That is, the policyholder does not have to pay taxes until the money is withdrawn. The insured has access to the cash value in the form of a loan.

Provided the premiums for a lifetime policy are paid in full, the death benefit is guaranteed and can be paid in one of two ways. One option is a lump sum to be paid upon death, the other is an additional benefit in case of early diagnosis of a serious illness. These payouts can be paid in one fixed amount; or may be based on the performance of the investment portion of the life insurance policy.

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A variety of products fall under the life insurance umbrella:

  • Non-participating whole life – Premiums and the face amount remain fixed. There are no dividends.
  • Participate throughout life – This policy will pay dividends, they are performance related so are not guaranteed.
  • Indefinite lifetime premium – premiums are adjustable to account for performance factors; and changes in death and administrative expenses.
  • Single premium and limited lifetime payment – The premium is either paid in one lump sum; or it is shortened to a shorter payment term.
To benefit from a lifetime policy, it is essential that premiums are paid in full. This is for the duration of the life insurance (except in the case of a single premium and limited salary). If the premiums are not paid, the entire life insurance policy will lapse. In addition, consumers should realize that life insurance is intended to be a long-term product. Typically, at least twelve years pass before the cash value begins to accumulate. The return on the investment portion of the entire life policy is rarely competitive with other investment alternatives. However, all of life has an added benefit. It offers protection, which is more important than returns. For this reason, life insurance is considered a good investment.

Each individual insured person with a lifelong policy receives a tailor-made premium. Some people will be considered uninsurable. When assessing risk, insurance companies initially divide people into two groups; smokers and non-smokers. Other factors such as health and lifestyle, family history and occupation will also affect the lifetime premium.

The benefits of a lifetime policy are summarized below:

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  • Premiums paid increase the cash value. With this cash value, it may be possible to pay off the entire life insurance policy early.
  • It can earn interest or dividends.
  • You can opt for fixed and constant premiums.
  • The future protection of your family is guaranteed.
  • You do not have to renew the policy; no more medical assessments.
  • Savings function, which can act as a lender.
  • Tax benefits. In particular, an insurance fund can be set up that can pay tax on your estate from the proceeds of the life policy.
The biggest downside to a lifetime policy is the cost. Also, the return is not guaranteed and therefore a lifelong policy should not be used as the sole pension fund. A lifetime policy is primarily a life insurance product; the cash value is just an added bonus. A lifetime policy is not suitable for short-term use. It is important to make a financial plan. Provided you can commit to the lifetime premiums for a minimum of twenty years and ideally longer; and you don’t need to access the cash value to fund living expenses; then a lifelong policy may be something for you. It is always wise to consult an experienced financial professional when considering lifetime coverage.
Whole life insurance and its benefits in your life

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