Two main types of life insurance exist: whole life insurance and term life insurance. Term life insurance provides coverage for a specified number of years. This type of insurance plan does not develop a cash value. The whole life insurance definition on the other hand, provides an individual with coverage for either their whole life or until they reach the age of 100. Whole life insurance plans develop a guaranteed cash value.
This usually begins following the first year of the plan. With whole life plans, you are required to pay a fixed insurance premium for the rest of your life and are not required to meet the costs of the increasing insurance premiums as found on term life policies. In order to remain in possession of the insurance, it is vital to keep up with full premium payments.
The obvious advantages of whole life insurance are the fixed premiums and the guaranteed cash values. Aside from insurance protection for life, whole life insurance also features an investment element in which you can accumulate cash value on a tax-deferred basis. The individual named on the policy can cancel or surrender the insurance policy whenever they wish and they will receive the cash value.
Some types of whole life insurance plans generate cash values that are larger than the guaranteed amount. However, this is dependent upon the interest rates and market performance. Furthermore, you hold the right to have a loan of your whole life insurance policy’s cash value. One of the advantages of whole life insurance is the opportunity to be able to earn dividends. Furthermore, the interest accrued on a whole life insurance policy is adjusted on an annual basis.
Like many insurance products, there are many different whole life insurance policy options. It is important to budget for whole life insurance premiums in the long term and refrain from purchasing whole life insurance if you will be unable to afford it.