How Does Whole Life Insurance Work?

Have you ever considered the benefits and the importance of whole life insurance?

Whole life insurance is an important consideration that one should think deeply about. It is a way to ensure that payment is received upon the death of the insured person. This payment will go to a beneficiary after the death of the insured person.

But how does whole life insurance work?

Let’s look at the different types of whole life insurance and understand how it works.

Term Life Insurance

For this type of life insurance, you have to decide how long you want your plan to last and how much coverage (in a dollar amount) you would like.

This is the simplest way to buy life insurance and is often the most popular among individuals who purchase life insurance for the first time.

One of the biggest drawbacks, however, is that you may outlive the duration of your insurance policy. If you do, you’ll have to purchase a new policy altogether.

Whole Life Insurance

Now let’s look specifically at whole life insurance. This insurance policy is valid for your entire life. The one drawback is that you have to make regular payments – usually once per month.

This type of insurance, however, doesn’t change in pricing. The payment amount stays the same. You will also get a guaranteed rate of return on the cash value investment of the whole life insurance policy.

Guaranteed Universal Life Insurance

With this type of life insurance policy, you only have to continue making the same payment for the duration of your life. There is a death benefit available upon your demise.

If you miss a payment you may lose the policy altogether. There’s also no cash value with this policy. If you are not always financially responsible, this life insurance policy should be avoided.

It is, however, one of the more affordable life insurance policies and you have the freedom to decide when you want your death benefit to be made available.

Indexed Universal Life Insurance

This life insurance policy’s cash value is on parity with a stock market index, such as the Dow Jones or the S & P 500.

The policy will outline a formula that helps you determine your potential gains.

You want to look into the cap on your return and any additional fees required before you choose this policy. The cash value can increase as the stock market rises. Your death benefit amount is also flexible, as long as it stays within certain limits.

We suggest reading into the cash value whole life insurance details to understand its importance better.

This is a great option if you are a bit riskier and want to take advantage of possibly earning a higher cash value through the stock market.