The Important Details
It’s unfortunate that so few people are educated about Whole Life insurance. There are so few companies still offering participating whole life because there is more profit in Universal Life Insurance. Thus most advisors are poorly educated on the value of a participating whole life policy because they companies they deal with have long abandoned the product. Those with the product knows little or nothing about there policy. If people had more information they could make a more informed decision on what makes the most sense for there situation. I am one of those who tout whole life insurance with no apology, as this policy has it's place in the insurance portfolio of many people. This policy fits some needs that term Life insurance or Universal Life insurance simply cannot fulfill.
Permanent Life Insurance The whole life policy can be described as permanent life insurance. This suggests that you can keep this policy for as long as you choose, even if it is to age 100. A term life policy simply cannot guarantee that.
Cash Values Whole life, or ordinary life insurance, have what is called " guaranteed cash values". Some people like this idea because they may choose to use these values as a sort of saving to assist with the college costs or even for a supplemental retirement fund. Whole Life Insurance Dividends All whole life policies are not the same. Some life insurance companies have a great history of paying dividends to their policy owners on a very regular basis. This does not say that they always will be in a position to pay a dividend. Dividends are not guaranteed although they do vest with the policy (they cannot be taken away or have anegative year) There are some life insurance companies that do not perform very well. (30 year return of 9%+ with very little fluctuation) There are several options that you can choose from but most people have a tendency to apply their dividends to the purchase of "paid up additions". These are little single premium whole life insurance policies. The other available dividend options are as follows: – leave your dividends to accumulate interest or use them to reduce premiums – take them in cash each year.
Why Cash Values And Dividends Are Important If at some time in the future you should need to put your hands on some emergency cash and that money is available through your cash values plus dividends you may take a percentage of this in the form of a policy loan. Even though you decide how you repay this loan you need to keep in mind that there is interest charged on this loan. In addition the death benefit of your policy is reduced by the amount owed and any unpaid accumulated interest. Another thing to note is that if you have an outstanding loan on your whole life insurance policy the amount of dividend paid will also be affected.
Non-forfeiture Values Another important consideration when buying permanent life insurance policies are non-forfeiture values. These options allow you to protect yourself from loss in the event you are unable to continue premium payments. Automatic Premium Loans - With most whole life insurance policies if a premium payment is missed the automatic premium loan is timely activated to prevent the policy from going into a state of lapse. In other words, you do not lose your insurance as long as there is sufficient cash value to keep it in force. Interest is charged on this amount just like any other premium loan. Extended Term Insurance - Instead of using an automatic premium loan to keep your whole life insurance policy in force you may choose to use what is called Extended Term Insurance to keep the policy in force. This is a Term Life Insurance policy for as many years as the cash value of the policy will purchase. If you should die during this period the full face amount of the policy will be paid to your chosen beneficiary. The only disadvantage is that with this option your cash values plus any dividend earned will dissipate over time. Reduced Paid Up – Policy Another option you have if you are unable to pay the premiums for your policy is to elect to keep a reduced amount of life insurance in force rather than the full amount you initially purchased. This policy, though for a reduced amount, will be fully paid up and you will never pay a premium again. The reduced death benefit will be paid upon the death of the insured. Cash Surrender Value - You may also surrender your policy for its cash value plus any dividends as another option. If there is any outstanding indebtedness on the policy it will be deducted from the amount you receive.
Waiver Of Premium Rider When purchasing your whole life insurance policy you have the option of adding the "waiver of premium rider" an a very minimal cost. You may find it beneficial as if you should become disabled the life insurance company will waive your premiums for as long as you are disabled even if it is for the rest of your life. You must, however, be disabled for a minimal period of time, usually six months. Whenever you are able to return to your job you continue payments of your policy. Nothing is owed for the period you didn't pay. Accidental Death Benefit Another valuable rider you can add to your whole life insurance policy is the "accidental death benefit rider". If you should die in an accident the life insurance company will pay twice the face amount to your beneficiaries. Some life insurance companies allow you to purchase an additional unit of the accidental death benefit rider. In other words, your family would receive three times the face amount of your whole life insurance policy if you died in an accident. Whole life insurance premiums are higher than term life insurance premiums. If you feel the above-mentioned benefits are worth the additional cost this type of life insurance may be for you.
I often describe a whole life policy as your own personal financial tsunami protection plan. When everything else does poorly it just keeps chugging away and is there when you need it the most!!! Lets face it who wouldn’t want a cash infusion in their retirement years or make sure if they passed away there was some money to make up for the loss as a result of the reduction in there company pension, CPP and elimination of there OAS. If its not needed then what a great way to assist your kids or grand kids with some legacy $$’s.
If you should need the $$ there are some very tax efficient way to get $$ out of your policy in your later years.
Let me know what you think or ask me any questions that you may have regarding your situation.
