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Steps You Can Take To Cut The Costs Of Life Insurance
With different options like term and whole-life insurance, trying to figure out which life insurance policy you should have can be rather difficult. Help simplify the process by reading these tips and finding out some great information you can use when you're in the market for a life insurance plan.
Life is unpredictable. Disasters can happen at any moment. Prepare for life today by buying insurance, not only for you house and car, but also health insurance that covers dental and doctor visits. If you are injured in a way that impairs your work, getting medical assistance is vital to you maintaining your lifestyle.
If you are looking to purchase a life insurance policy and you are a smoker, try to quit. This is because most life insurance companies will not provide insurance to a smoker, as they are more at risk to getting lung cancer and other smoking-related conditions. Companies that will provide insurance to a smoker will usually charge higher premium rates.
When you are thinking about how much life insurance to purchase, it's a good idea to get at least eight or ten times the amount of your annual income. With this amount, if something happens to you, your dependents will be able to invest wisely and continue to take care of their living expenses in the long term.
Try to lead a healthy lifestyle. The healthier you are the cheaper your life insurance will be as insurance providers assume that you will live longer. Remember, more info you will be expected to pay a high premium on a life insurance policy for anything that shortens your life expectancy, for example being overweight, smoking, taking certain medication, etc.
To get a good life insurance rate, purchase life insurance while you're still young. Rates are lower the younger you are, and you can keep paying the same rate as time goes on. You may not need life insurance now, but you'll need it in the future. Being proactive about your life insurance will help you get a great policy for a low cost.
Life insurance is incredibly complex. Ascertaining an appropriate understanding of all that coverage involves and all the fine print requires considerable research, but will be worthwhile once you and your loved ones are protected. By following the advice in this article, you are going to be purchasing the right life insurance policy in no time.
What Is Whole Life Insurance? (& How To Get It)
Whole life insurance is one type of permanent life insurance that can provide lifelong coverage. It provides a variety of guarantees, which can be appealing to someone who doesn’t want any guesswork after finding and buying the best life insurance.
Whole life insurance combines an investment account called “cash value” and an insurance product. As long as you pay the premiums, your beneficiaries can claim the policy’s death benefit when you pass away.
What Is Whole Life Insurance?
Whole life insurance offers coverage for the rest of your life and includes a cash value component that lets you tap into it while you’re alive.
Whole life insurance companies offer three kinds of guarantees:
- A guaranteed minimum rate of return on the cash value
- The promise that your premium payments won’t go up
- A guaranteed death benefit amount
Whole life insurance is more expensive than term life insurance because people with a whole life policy are guaranteed to have a death benefit when they die. Term life insurance, on the other hand, offers level rates for a specific period, such as 20 or 30 years. Term life policies are cheaper than whole life insurance because they offer only coverage, not cash value.
Types of Whole Life Insurance
Participating vs. Non-Participating Whole Life
Policyholders of whole life insurance are usually eligible for annual dividends from the life insurance company. If you’re buying whole life insurance, confirm that the policy is “participating” so that you can reap the benefits of dividends.
- With a participating whole life insurance policy you are eligible to receive life insurance dividends from the insurer each year, which are essentially a refund of excess premiums paid by policyholders. Dividends are not guaranteed, but many life insurance companies are known for paying consistent dividends year after year. You can take the dividends in cash, use them to pay premiums, or use them to increase the face amount of your policy.
- With a non-participating policy you won’t get any dividends.
Whole Life Insurance Payment Types
You may find differences in how you can pay for a whole life insurance policy.
- Pay premiums on a regular basis: You’ll pay a fixed amount monthly, quarterly, semi-annually or annually.
- Single premium: You’ll pay the entire cost of the policy upfront. Cash value will be available right away and you’ll have no further premiums to pay.
- Limited payment: You’ll pay regular premiums for a set number of years, such as 10 or 20 years. After this time period, the policy is paid up and no more payments are required.
- Modified premium: Modified whole life insurance policies require premium payments that will increase after an introductory period. Your premiums will be lower for a set number of years—such as the first three to five—and then higher for the remainder of your lifetime. The death benefit will not change.
How Does Whole Life Insurance Work?
Whole life insurance works by first selecting the amount of coverage that best suits your needs. Once you have a policy, whole life insurance can remain in-force for your lifetime—as long as you continue to pay the premiums. Also, a cash value component will accrue over time.
Cash Value Accumulation in Whole Life Insurance
Whole life insurance is a type of cash value life insurance. Part of the premium payments for whole life insurance will accumulate in a cash value account, which grows over time and can be accessed with a policy loan, withdrawal or surrender of the policy.
Similar to a 401(k) or IRA, the money in the cash value account grows tax-free. However, if you take out cash value that includes investment gains, that portion will be taxable.
The accumulation of cash value is the major differentiator between whole life and term life insurance. While actual growth varies by policy, some take decades before the accumulated cash value exceeds the amount of premiums paid. This is because the entire premium does not go to the cash value—only a small portion. The rest goes to paying for the insurance itself and expense charges.
Most whole life policies have a guaranteed return rate at a low percentage, but it’s impossible to know how much your cash value will actually grow. That’s because most insurance companies that sell whole life also offer a “non-guaranteed” return rate of return based on dividends. You can choose to apply your dividends to cash value every year, but you can’t know how much that will amount to over time.
It may take decades for a policyholder’s cash value to exceed what’s paid in premiums.
Using the Cash Value in Whole Life Insurance
You want to be sure that you know all the ramifications of accessing cash value prior to making any decisions.
Death Benefit and Choosing Beneficiaries
When you buy a policy, you’ll choose a life insurance beneficiary to receive the death benefit. You don’t have to split the payout equally among beneficiaries. You can designate the percentage for each, such as 75% to Mary and 25% to John.
It’s also a good idea to designate one or more contingent beneficiaries. These folks are like your backup plan in case all the primary beneficiaries are deceased when you pass away.
Designating beneficiaries is an important task, as is keeping your designation up to date with your wishes. The life insurance company is contractually obligated to pay the beneficiaries named on the policy, regardless of what your will says. It’s wise to check once a year to verify your beneficiaries still reflect your wishes.
What Happens When You Die
A major selling point of whole life insurance is that it will be in force until your death, as long as you’ve paid the required premiums.
But here’s a kicker: For most policies, the policy pays out only the death benefit, no matter how much cash value you’ve accumulated. At your death, the cash value reverts to the insurance company. And remember that outstanding loans and past withdrawals from cash value will reduce the payout to your beneficiaries.
Some policies allow you to purchase a rider that gives your beneficiaries both the death benefit and the accumulated cash value. This provision also means you’ll pay higher annual premiums, as the insurance company is on the hook for a larger payout.
How Much Does Whole Life Insurance Cost?
While some of the cash value features and the permanent nature of whole life insurance sound appealing, whole life insurance is simply unaffordable for many people.
Many life insurance shoppers look at term life vs. whole insurance costs. It’s never an apples-to-apples comparison because the policies are so different. That said, here are examples of whole life insurance quotes based on a 30-year-old male of average height and weight for $500,000 in coverage.
https://www.marketwatch.com/guides/insurance-services/what-is-whole-life-insurance/
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