Whole life, otherwise referred to as straight or permanent, life insurance is becoming one of the most frequently purchased types of insurance. Covering the insured individual for life, it not only provides financial protection, but also accrues a cash value and often pays dividends to the insured.
In other words, it can be used as an investment to secure one’s financial future. Purchasing a whole life policy has a number of distinct advantages over other types of policies, the first of which is the death benefit. Whole life policies guarantee a never decreasing death benefit which is not liable to taxes. It is also possible to take the death benefit in the shape of a monthly income, as opposed to receiving a lump sum.
Premiums payable do not increase with whole life policies, unlike term life, where premiums increase with each renewal. Instead, whole life premiums may be reduced through using dividends. In contrast to other policies, whole life accumulates tax deferred cash reserves. These increase as premiums are paid. If the insured decides to surrender the policy, the cash value is paid out.
Policy holders owning a participating whole life policy are also eligible to receive dividends. These are paid in cash and can either be used to reduce premiums, or be left to generate interest within the policy.
Should the need arise; part of the cash value may be taken out in shape of a loan, which is then paid back through the premiums. This, however, carries one small disadvantage. Should the insured die before the loan is repaid, the amount outstanding on the loan will be taken out of the death benefit. These advantages certainly do make a whole life policy worthwhile. To clear up any doubts or questions, an expert should be consulted before making decisions.
