Whole life insurance, also known as "cash value" insurance, is a basic, consistent type of permanent life insurance that stays in force for your lifetime at one level premium. This life insurance is a good choice if you don't expect your life insurance needs to diminish over time. A portion of your premium goes into a reserve fund called "cash value" which accumulates over the years your policy is in force. Your reserve fund is tax-deferred and you can borrow until you withdraw it.
Premiums should generally remain constant throughout the term of the policy and should be paid periodically in the amount stated in the policy. You can also have the option of a single premium ----- pay all premiums at once with one lump sum. Your cash values will increase to the death benefit amount when you reach age 100.
Although whole life insurance is very expensive, and if your budget is limited, you may not be able to afford all the insurance coverage you really need. But the good thing is that the death benefit is guaranteed as long as the premiums are met. Also the death benefit will never decrease if you don't borrow against it.
Returns from whole life policies will fluctuate with the markets and generally follow the returns available from other investments such as mutual funds. However, if you decide to cancel your policy, your cash value can be paid in cash or paid-up insurance.
Whole life insurance is best for you if you want to:
• use it as a tax and estate planning tool,
•accumulate cash value for a child's education or retirement,
• pay the final costs,
• donate money to a favorite charity,
• finance a business purchase/sale agreement,
• ensure the protection of key persons.
Before buying whole life insurance, you need to think carefully about your level of coverage. Too often people make the mistake of not covering themselves enough or, even worse, overstretching themselves financially. This would be a tragic mistake with a whole life insurance policy, as failure to pay premiums can mean policy cancellation and the loss of your entire investment. So be careful and make sure:
• choose a life insurance policy whose surrender value is guaranteed from the first year,
• choose the one with the highest cash surrender value from the first year,
• Consider “participating” insurance policies that can pay dividends, increasing the value of your policy by increasing both the total cash value and death benefits.
• Beware of insurance policies that charge a “surrender fee” when you cancel.
• If you ever need to stop paying premiums, your policy allows you to use the accumulated cash value of the life insurance policy to pay premiums, keeping your coverage current.
