WHOLE LIFE PLANS
Traditional Whole Life- traditional whole life insurance provides lifetime coverage on the insured. Both guaranteed and non-guaranteed cash values accumulate in the policy. Some products require continuous premium payments throughout the lifetime of the insured, while others limit premiums to a specified period. For policies that have cash values accumulated, a non-forfeiture provision will take effect once premium payments cease unless other instructions are given.
Dividends- frequently, whole life insurance is issued on a participating basis, where the policyowner shares in the insurance company’s divisible surplus. The policyowner’s share of this surplus is called a dividend, and it is a non-guaranteed element of the policy. When the polciyowner of a participating whole life policy applies for their policy, they select one of many dividend options. Several popular dividend options include:
- Paid-up additional insurance
- Premium reduction
- Accumulate at interest
- Cash
- One-year term insurance
If dividend performance is optimal, it can even be used to fund premiums for an extended duration- such as the policyowner’s retirement years. (One must take care to note, however, that this must be monitored due to the fact that dividends are a non-guaranteed element of the policy, and subject to change.)
Non-forfeiture Provisions- these are benefits that prevent a cash value policy from lapsing due to nonpayment of premiums. Common non-forfeiture provisions include:
- Reduced paid up insurance: uses the cash value of the life insurance at the time of non-payment to purchase as much paid-up insurance as possible.
- Extended term insurance: uses the cash value of the life insurance at the time of nonpayment to purchase as much term insurance for as long a period as possible.
- Automatic premium loan: uses the cash value of the life insurance at the time of nonpayment to automatically take a loan against it’s own cash value to pay the premium payment. Loan interest will accrue as usual.
ADVANTAGES OF TRADITIONAL WHOLE LIFE
- Provides coverage for the lifetime of the insured
- Guarantees cash value and death benefit
- Build strong current cash value
- Dividends may be payable
- Provides non-forfeiture benefits in the event of non-payment
- Premiums can be paid through dividends
- If insured’s health declines, underwriting is not an issue
- Policyowner may take loans or withdrawals if they have cash flow needs
DISADVANTAGES OF TRADITIONAL WHOLE LIFE
- High cost relative to other types of insurance
- Inflexible premiums and death benefits
