Whole life insurance, also known as "whole of life" insurance, sometimes referred to as "passive life" insurance or "continued" life, is life insurance coverage that is guaranteed to stay in force for an insured's whole life, either required under the terms of the policy or agreed upon in the policy document. One of the most common forms of whole life insurance is variable life insurance. Variable whole life insurance policies offer the flexibility of increasing or decreasing premiums and death benefits. Premiums and death benefits are tax-qualified and may also be invested in the policy itself, providing an additional source of income in the event of the policy holder's disability or death. Unlike many other forms of whole life insurance policies, variable whole life insurance policies do not restrict a policy holder's beneficiary list. If the insured borrows from the policy, however, such borrowing must be repaid when the policyholder dies.
Whole life policies pay a death benefit, which can be used to finance funeral expenses and leave funds in trust for beneficiaries. A policy holder may also choose to borrow against the value of the policy, in which case the death benefit is not refundable. In the event of the policyholder's disability or death, the value of the borrowed funds is immediately returned to the insured. In the latter case, the proceeds of the policy are applied directly to a savings component and are exempt from income tax. Because the policyholder may borrow against the value of the policy, an investment in a qualified retirement account may be necessary to guarantee sufficient death benefits in the event of the policyholder's disability or death.
In addition to providing death protection, whole life insurance provides the insured with the opportunity to build a savings component to provide for future living expenses. Policy holders may borrow from their policies, and the premiums paid by the insured on these loans are exempt from taxation. Policyholders may also borrow against their accumulated savings to obtain additional coverage at favorable rates. Premiums, which are based on an actuarial assessment of future income and death rates, are usually variable and are scheduled to increase periodically. A flexible premium structure allows the policyholder to shift between fixed and flexible premium payment options, depending on changes in his or her financial circumstances.
An individual may purchase either a term or whole life insurance policy. In a term policy, usually for a limited time period, a lump sum payment is made upon the death of the policyholder. In a whole life insurance policy, the cash value accumulates throughout the policy and is not taxable until distribution. Sometimes called a variable life policy, the cash value account is subject to investment and growth beyond the cash value. Visit https://paradigmlife.net/blog/what-is-whole-life-insurance/ for more details on this topic.
Most whole life insurance companies offer a choice of two types of dividends - straight dividends and non-cash dividends. In a non-cash dividend payment, interest is paid only on the premiums and is not taxable until distribution. Straight dividends are payments made quarterly to the policyholder. Most life insurance companies permit the dividend to be invested in various activities and accounts, such as mutual funds.
In addition to offering a wide variety of products and underwriting plans, life insurance companies are engaged in several activities to help customers manage their policies. Many Whole Life Insurance companies provide tools such as budgeting tools, accidental benefit coverage, medical insurance buy-down or surrender, as well as educational seminars designed to improve the consumer's understanding of life insurance. Many Whole Life Insurance companies also offer Guaranteed Asset Protection & Account Compensation, which pay an agreed amount if the named beneficiary becomes bankrupt or dies. One of the most popular voluntary insurance products available, Annuities are a form of whole life insurance that pay a lump sum to a named beneficiary in exchange for regular payments over the course of the policy. You may need to check out this article: https://en.wikipedia.org/wiki/Whole_life_insurance to get more info on the topic.
