Whole life insurance policy guarantees a death benefit to the policyholders beneficiaries at whatever point the policyholder dies. Whole life insurance policy is one of the heavily marketed life insurance policies. It is easy to understand and straightforward especially when compared to a universal life insurance policy. The various characteristic of a whole life insurance policy are detailed below.
Permanency
The whole life insurance policy is permanent and lasts the whole lifetime of the policyholder. The contract signed with the life insurance company is a lifetime binding contract. The insurance company can never cancel or alter the contract in any way as long as the policyholder adheres to his or her side of the contract. For the policyholder, the contract only obligation is the payment of the premiums. The company can only terminate a life insurance policy if the policyholder provided fundamentally erroneous and in most cases fraudulent information. Such a cancellation can only happen in the very fast few years of the policy. Therefore, a policyholder is guaranteed of a lifetime cover and the beneficiaries have a sure inheritance once the policyholder dies.
Level Premiums
The other characteristic of a life insurance policy is that it has level premiums. These premiums are set at the very beginning of the contract and they remain level through the whole life of the policyholder. There are two different types of whole life insurance policies when it comes to premium. Some policies will have you pay premiums throughout your whole lifetime while others will have you pay premium for a specific period of time and thereafter, you will enjoy coverage with no further premiums payments. The period of premium payments for the latter type of policy differs from policy to another.
Cash Value
Another characteristic of the whole life insurance policy is that the policy accumulates cash value over time. The cash value is equivalent to the premiums paid. The cash value can be used as security for taking out a loan with the insurance company. Usually, an insurance company is willing to advance a loan of 90% of the cash value accumulated. However, such a benefit is usually available in later years of the policy. The loan is automatic after the qualifying period and there are no further credit checks to qualify for the loan. The loan does not count for your credit rating. If you die with an outstanding balance from the loan, the balance is removed from the death benefit. Besides the loan benefit, you can also withdraw the cash value on surrender of the policy. However, insurance company will remove various charges and fees for terminating the whole life policy. If surrender is within the first few years of the policy, the policyholder will get little to no cash value.
Level Death Benefit and Cash Value
Unlike the case of universal life insurance policy, a whole life insurance has standard and set premiums, cash value and death benefit. These amounts are determined at the very beginning of the contract and they remain the same throughout the policy life. The policyholder can therefore not alter premiums to increase or reduce their cash value or alter the death benefit with the same policy and can only seek extra coverage with another life policy to achieve this.
Dividends For Participating Whole Life Insurance
For whole life insurance Canada companies that are privately owned, whole life insurance policies will normally be participatory and thus qualify for dividends. Therefore, the insurance company will make distributions of its profits to policyholder in terms of dividends. When seeking whole life insurance quotes, you will need to review whether the life insurance policies have a dividend plan and whether the policies qualifies for dividend.