How Does a Whole Life Insurance Policy Work

cxzIt is quite common knowledge that you have a life insurance paying out when the insured person passes away. While there are different kinds of life insurance policies, a whole life insurance policy has stark differences as compared to a term or a universal policy. So, how does it work and what are the big advantages?

A whole life policy does not have a predefined term that is defined during the insurance policy. While it does provide a death benefit and a strong protection over the entire life period of the person that is insured, the policy is deemed valid only as long as the premiums are paid in full. Hence, this kind of policy serves as both an investment package as well as an insurance package. The idea of utilising such a policy comes to good effect when you accumulate a strong cash value towards the policy and this can be used as collateral to borrow or even withdraw during the insurance period.

Quite obviously, there would be a lower return rate as compared to other popular insurance policies. The obvious benefits that comes with this kind of a policy is that there would be a fixed premium and you are aware of the costs that you have to pay. On the flip side though, you are not going to be able to claim flexible premiums as supported by other insurance policies. At the same time, a big advantage offered by a whole life policy is that you have lifetime coverage and you have the option of calling it quits at any time with a surrender fee to be paid. Even though there would be a lower rate of return as opposed to other investments, one good point is that you have tax deferred cash accumulation; which gives you a higher rate.

While there are fixed term insurance policies available today, they do not cover a person for an entire life time and since they are generally long term polices, the risk coverage reduces as the cash value increase over a period of time. Hence, in the event that you pass away, the beneficiary would get a total of the policy amount and the total premium value.

A life insurance policy is definitely a great idea today. It would keep your family secure in drastic events and it could give your family that much needed financial support during a crisis. It would be a strong supplement as it would be expectedly a larger insured value. Make the right choice by choosing the right insurance policy for you and your loved ones. Life insurance is the perfect way to be prepared for the worst.