What are the different types of whole life insurance commonly available?
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Asked April 22, 2014
Permanent Life insurance, sometimes called whole life, defines a particular type of life insurance policy which remains in effect as long as you live and keep the premiums current. Most whole life insurance policies have an accumulated cash value which can be useful while you are living. The three basic types of permanent life insurance are whole life, universal life, and variable life insurance, and each one has benefits which are unique to that type of policy.
The primary benefits of whole life insurance over term life coverage are that the policy does not expire and it carries a cash value separate from the face value. Cash value builds as you pay premiums, and the accumulated value earns interest. Cash values in whole life policies allow you borrow against the policy without collateral or a credit check.
A universal life policy is similar to a traditional whole policy, but it gives the policyholder more flexibility. Instead of having fixed premiums, you can choose to increase or decrease the amount of your premiums as long as a specific minimum premium payment gets made. Choosing to pay more than the required premium will help the accumulated cash portion grow faster, while paying less than the required amount will deduct the remainder of the requirement from your policy's cash value. Like whole life insurance, universal life does not allow the owner of the policy to participate in how the premiums are invested.
Variable life insurance comes in two types: Variable life and variable universal life. With traditional variable life insurance, the primary advantage of the policy is that you can choose how the premiums are invested by the insurance company. Variable universal life insurance works like a universal life policy, except that you control the investments. Keep in mind that choosing wisely can greatly increase the accumulated cash value, but poor choices can result in the cash value being wiped out. Your policy will never pay out for less than the face value of the policy, but the cash value, as the name implies, is a variable amount that depends on the performance of your investment options.
Answered April 22, 2014 by Anonymous