A whole life insurance policy is one of the two main types of life insurance covers that a person can procure to safeguard the financial future of their dependents and loved ones after they pass away. It is a contract between the insurer and the policyholder for the former to pay a lump sum amount of money to the designated beneficiaries when the policyholder dies. The policyholder is required to pay a premium for the whole life insurance contract to be executable. Life assurance is usually the main source of funding for the dependents and survivors of the policyholder.
Types of Life Insurance Policies
Over the years, insurance firms have developed different types of life covers to suit the needs of different types of people. The following are the most common types of policies:
Permanent Life Insurance
This is a policy that remains valid until it matures. The insurer cannot simply decide to cancel a permenent life insurance policy due to the perceived deteriorating health of the policyholder. In fact, the only thing that may lead to cancellation is fraud. Premiums for a permanent life cover are paid monthly or annually. The policyholder can access the cash value of their policy through borrowing, withdrawal or demanding the surrender value (this is money provided by the insurer when the policyholder cancels this type of policy). Examples of permanent life covers include whole life, limited pay, endowment and universal life covers.
Whole Life Insurance
In this type of life cover, the policyholder pays the quoted premium and in return the life insurer agrees to make a lump sum payment to the designated beneficiaries when the policyholder passes away. This is the most expensive type of life insurance, but it offers the best coverage.
Term Life Insurance
Unlike the whole life cover, a term life insurance policy only covers a specific period. The term may vary when it comes to this type of insurance policy. The term can be one year, five years, a decade or as the parties may determine. This type of cover only provides a payout to the beneficiaries if the policyholder dies within the term of the policy. If the policyholder dies a few hours after a 5-year term policy expires, no payout will be made to the survivors.
Mortgage Life Insurance
This is a variation of the term life cover. This policy is designed such that its term is equivalent to the term of the mortgage. It is meant to provide a payment equivalent to the outstanding balance of the policyholder's mortgage loan. When it matures, the payout will go towards servicing the mortgage.
Mortgage Protection Insurance
This product is designed for anyone who has a mortgage. There are many things that might make it hard for a person to service their mortgage. For instance, disability, losing a job and economic factors can affect a person's ability to make mortgage payments. By taking out a mortgage protection insurance, the insurer will continue servicing the mortgage in case you are unable to do so. Most mortgage lenders provide their clients with this type of cover, but a person can choose to get coverage from a different company.
Critical Illness Cover
This is not a type of life cover, but it provides coverage over a long period of time. In this type of policy, the insurer is required to make a one-off payment to the policyholder if and when they are diagnosed with a critical illness.
Factors Affecting Life Insurance Quotes
Insurance policies do not have a fixed cost. Their premiums usually vary from one person to another depending on a number of factors. For instance, the type of policy, age of the applicant, exclusion clauses and health of the policyholder may affect the cost of premiums. The age of an individual has a great effect on cost of premiums for instance, over 50 life insurance may be very costly. When procuring a whole life insurance over 50, a person may be forced to pay higher monthly payments to ensure that their dependents are well protected financially. Since insurance firms have their own pricing structures, it pays to shop around. Instead of looking at cost of premiums only, consumers should also look at the features and exclusions that come with a life cover. Comparing life insurance quotes makes it possible for consumers to find cheap life insurance.
Consumers should always look for life insurance advice to ensure that they get the best life insurance UK firms have to offer. An insurance expert can be very helpful especially when seeking over 50s life insurance. Most companies nowadays have a life insurance calculator on their website to help potential clients to calculate their premiums and payouts.
Permanent Life insurance remains a neglected commodity, although the consensuses among many economists endorse the purchase of universal life policies. Yet, for many, the question remains - what's the benefit of buying these types of policies, other than a death benefit, when you could simply save your money in a bank account?
It all depends on your obligations and what you need to accomplish in your golden years, yet studies find that most people are always under-insured. As inexpensive as insurance policies have become shown by SimpleFS life insurance quotes, people still sacrifice what they need the most.
The Flexibility of Permanent Insurance
Typical life insurance policies provide temporary coverage for a specified period of time, such as 10, 15 or 20 years, but you may live longer than the time specified in your policy, then the policy will expire, and you will have to find yet another policy, that is, if you want to have coverage.
Universal insurance policies are permanent. With a permanent life policy, you do not have to worry if you outlive the policy term because your contract provides you with coverage for your entire life as long as premiums are paid.
Permanent Policies At-A-Glance
• Flexibility to change the premium and benefit amounts
• A guaranteed interest rate
• You can take loans against the cash value
• The option to use the value of the cash to pay in full an insurance smaller in the future
Universal insurance is a hybrid policy - a blend of death and premiums are paid towards your life death benefits and an investment fund. When you pay the premium to the insurance company, a portion pays for the policy and the balance is invested, most likely, in mutual funds and earns a return.
The cash value of a permanent policy is the crux of insurance: It is a savings account that you have within your policy and accumulates for you over time, not to mention, has deferred tax.
Grow it or Give Your Money Away
Retirement can certainly become less fulfilling when you must share your income with Uncle Sam. Every penny you've socked away is still encumbered by taxes. The good news is that the cash you've accumulated in a universal policy can be tax-free, that is, after retirement.
Sure, your typical savings account at your local bank helps you save money, but today's low interest rates certainly won't help you build a nest egg. Retirees can make monthly withdrawals from the cash value of a universal insurance policy to supplement a limited income. As long as the amount of withdrawals is less than the amount of the premiums, the withdrawals remain tax free.
The cash portion in a permanent life insurance policy earns a higher rate of return due to their equity investments. Additionally, not only are these policies flexible, but they are adaptable to rapid stock market changes. The policy pays out a minimal guaranteed rate of return, no matter what, so when it comes to risk, the insurance company absorbs it, not the insured.
The Versatility of Life Insurance
Consumers have begun to explore the under-stated value of life insurance policies, and how to take advantage of this flexible asset. Universal policies offer a variety of options that we usually ignore. For example, today, many senior citizens are faced with challenging financial choices and have opted to utilize the policy's cash accumulation for loans against the policy and their long-term care expenses.
As the cost of living rapidly increases, you can quickly become destitute, especially when paying for long-term senior care, but loans are just one way to monetize an insurance policy. As long as the policy has value, you can borrow up to 90 percent of the cash value of your policy, tax free. This certainly comes in handy when you're facing a financial challenge.
In comparison, bank loans offer no advantages; you must meet credit guidelines, you pay back the face value of the loan plus interest and you have time-enforced restrictions on that loan. The cash value portion of your policy is your money and you can borrow the money at any time.
Today's cost of living is outpacing retirement checks, leaving very little to live on, thus if you plan on having an affordable life cover the necessities for those golden years. Insurance policies are an outlet that often helps when you need extra funds.