Whole Life Insurance And How It Works
When looking for a good whole policy one has several factors to weigh.
A good understanding of how whole life insurance works really helps when making
your decision.
In a whole life policy you have basically two parts. One part of the policy is the death
benefit. This is the part that pays your beneficiary a lump sum of money if you die.
There are two types of beneficiaries on an insurance policy. One is a revocable beneficiary.
The other is an irrevocable beneficiary.
A revocable beneficiary is a beneficiary that can be changed at any time by the policy
owner. Irrevocable beneficiaries cannot be changed once one has been designated
on the policy. I suggest for most people you choose the revocable option.
On many cash value insurance polices there are two options with regard to the death
benefit. One option is a level death benefit. This means the death benefit will always
remain the same. The other option is increasing. This means as your cash inside the
policy grows your death benefit grows as well. In regard to the level death benefit
option, I feel this option is bad for most consumers. The level death benefit means
for example if you had a policy with a face value of $100,000 and $50,000 of cash
inside the policy upon your death the beneficiary would only receive the $100,000
face value. Common sense is to have a policy with an increasing death benefit.
The money inside the policy is your money and not the insurance companies money.
The second part of the policy is the money inside the policy called the cash value.
The cash value can be accumulated with different methods. One example would be a fixed
rate for example 3-5% guaranteed. There is another type of policy called a variable universal
life policy. These types of polices invest the cash value in the stock market through sub accounts.
These sub accounts are usually invested in mutual funds. The problem in these types of polices
in my opinion is blending risk with a product meant to eliminate risk. Insurance by definition
is meant to take away risk.
A blend of these types of polices is called an indexed universal life policy. Indexed policies are linked
to a stock market index such as the S&P 500 index. When the index goes up your money goes up as well.
When the index goes down your money does not go down with it. This allows you to able to play the market
with no risk involved.
A good understanding of how whole life insurance works really helps when making
your decision.
In a whole life policy you have basically two parts. One part of the policy is the death
benefit. This is the part that pays your beneficiary a lump sum of money if you die.
There are two types of beneficiaries on an insurance policy. One is a revocable beneficiary.
The other is an irrevocable beneficiary.
A revocable beneficiary is a beneficiary that can be changed at any time by the policy
owner. Irrevocable beneficiaries cannot be changed once one has been designated
on the policy. I suggest for most people you choose the revocable option.
On many cash value insurance polices there are two options with regard to the death
benefit. One option is a level death benefit. This means the death benefit will always
remain the same. The other option is increasing. This means as your cash inside the
policy grows your death benefit grows as well. In regard to the level death benefit
option, I feel this option is bad for most consumers. The level death benefit means
for example if you had a policy with a face value of $100,000 and $50,000 of cash
inside the policy upon your death the beneficiary would only receive the $100,000
face value. Common sense is to have a policy with an increasing death benefit.
The money inside the policy is your money and not the insurance companies money.
The second part of the policy is the money inside the policy called the cash value.
The cash value can be accumulated with different methods. One example would be a fixed
rate for example 3-5% guaranteed. There is another type of policy called a variable universal
life policy. These types of polices invest the cash value in the stock market through sub accounts.
These sub accounts are usually invested in mutual funds. The problem in these types of polices
in my opinion is blending risk with a product meant to eliminate risk. Insurance by definition
is meant to take away risk.
A blend of these types of polices is called an indexed universal life policy. Indexed policies are linked
to a stock market index such as the S&P 500 index. When the index goes up your money goes up as well.
When the index goes down your money does not go down with it. This allows you to able to play the market
with no risk involved.
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