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Whole life insurance

Whole life insurance is one of the most often used life insurance products. It differs from other life insurance policies (for example, term life insurance) in the way that it is constructed to guarantee coverage for the whole life of the insured person. In the past, only various term life insurance types existed, where the person could pay premiums for ten, twenty or even more years and after agreed period of time his cover would end and he would be left with nothing. Thus, as there were many disappointed clients, the idea of insuring person for his whole life was constructed and new type of insurance was offered for the clients.

Policy conditions and premiums

Usually premiums can be paid not for the entire life of the person but until an individual reaches certain age. Even after premiums are no longer paid, the cover still continues. In other words, person can be guaranteed that he will be paid a lump sum after he died in contrast to other insurance policies.

Premiums can be paid in different ways depending from the conditions in policy contract. They can be paid periodically, but also it is possible to set the premiums to be flexible, level term or even a pay a lump sum for a certain period in advance. One more thing that can be mentioned is that this type of insurance policy can be cancelled any time and still person will get the amount of premiums that have accumulated over time.

However, this accumulation does not mean that the individual will get the amount of money equal to all of his premiums paid in the past. An important factor is that usually some kind of deductions are made. In the first years these deduction re very high and can even equal to the premium paid by policyholder. The reason behind this is that the insurance company faces the highest risk during the first few years of the contract. Over time, the deductions get smaller and usually become not higher than few percents of the premium that is being paid.

Moreover, usually the amount of premiums left after deductions is invested and over long time it can have considerable returns.  Most insurance companies invest this money into bonds, equities or mutual funds. However, it must be remembered that such investing is usually profitable only in the longer time period as the financial markets usually fluctuate quite considerably and in the short run the return can be very small or even significantly negative.

Types of whole life insurance

Most common types of the whole life insurance usually are interest-sensitive, traditional and single payment whole life insurance options. The last one, single payment policy is usually used by individuals who can pay large cash sums in advance and that way buy whole life insurance policy. Other two types differ in the way that they both require to pay premiums each month and can guarantee some return. The interest-sensitive whole life insurance policy is usually more flexible with and can offer higher returns on investments whereas traditional life insurance has a guaranteed minimum rate of return.

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