How Does a Whole Life Insurance Policy Work?

How exactly does a whole life insurance policy work? Whole life policies are popular with some select groups of people but they are a little bit more complex than their plain vanilla easy to understand term life insurance counterparts.

The business of insurance has to be one of the most underrated services offered in the United States nowadays. Not many people think having life insurance is important and because of this we see that the industry is not as successful as the auto and homeowners insurance business. It is important to know however, that death comes at any age; and if a person wants to protect their family or other people after their death it is imperative for them to purchase a life insurance policy.

There are two basic types of life insurance in the United States that work in completely different ways and because of this have different premiums. One of these types of insurances is one that is called a temporary policy. This policy covers a policyholder for about 5 to 30 years and their premiums are most of the time stagnant. On the other hand we have the permanent policy in which members are covered for life as long as they pay all their premiums. Part of your premium will go toward a little saving portion of the policy that will accumulate over time and the other portion of the premium goes towards the insurance cost of the death benefit.

Whole life insurance is one of the three types of insurance polices that you can obtain if you want a permanent life insurance policy. This means that whole life will cover you for life and that your cash value (saving portion) will get higher as time goes by. However, whole life is different in that your cash value is tax deferred until the beneficiary withdraws it and you can also borrow against it.

A person should consider whole life insurance when the need for coverage is lifelong. Whole life may be used as part of your estate planning because it accrues money after a person pays the premiums, as mentioned before. Because premiums for this type of policy are much higher than those of temporary policies, a person must know that this is what they want after all. Whole life is a good choice if you want to make sure that your family or dependents have a good life after your death, and that the transition from the death of a person close to their lives is a close one.

Within the whole life realm, there are six different kinds that a person can choose from.

1. Non-Participating Whole Life Insurance: This type of whole life policy has a leveled premium and a face amount through the entire policyholder’s life. Since the policy has fixed costs the premiums will not be necessary high, but it will no pay you any dividends after the policyholder dies.

2. Participating Whole Life Insurance: This type is much different from the first type mentioned. One of its differences is that this one does pay dividends and because of this premiums can be said to be a little bit more expensive. These dividends can be used to reduce your premium payments because they can be paid in cash, they can be left to accumulate at a specified rate of interest or they can be used to purchase additional insurance which in turn will increase the value in cash that a beneficiary will receive after a policyholder’s death.

3. Level Premium Whole Life Insurance: This kind of insurance is one that has the same premiums with no significant drop or rise in the money paid monthly through the entire life of the policy. At first the premiums will be enough to cover the services given and a little portion of it can be put away to cover the premiums that will come in later years when the cost of insurance in the market rises. The insurer can also pay extra premiums that will go toward the cash value part of the policy one the policyholder dies.

4. Limited Payment Whole Life Insurance: This is the type of policy that will allow you to only pay premiums over a specified period of time. This means that if you only want to pay premiums for about twenty to thirty years or up until age 65 or 85; this is the type of policy that you want. Because premium payments are going to be paid over a specified period of time, your premium payments will be significantly higher, but after you get done with them you will be covered for life.

5. Single Premium Whole Life Insurance: This type of policy is one that is very common for people that select the whole life insurance type. This is a limited policy with a single relatively large premium due at issue. Due to the fact that the owner of the policy will pay the single premium payments when the policy is first signed, the life insurance policy will immediately have cash and loan value! This type of whole term life insurance is mostly an investment oriented type than some of the others.

6. Indeterminate Premium Whole Life Insurance: This is the easiest type of whole life policy to understand and also one of the most common ones in the life market. With this insurance the company will give you a premium based on how the company is doing economically and on expense costs. This means that while one year the premiums can be slightly lower than expected, in the next the company can charge more if they are not doing up to expectations. It is also good to note that there is a maximum guaranteed premium when you first sign your policy and that the life insurance company can never charge above the premium stated

While the cost of whole life coverage is substantially higher than a term life policy with the same death benefit it is important to keep in mind that the reason for the difference in price is that the death benefit for the whole life policy will almost certainly be paid out – after all everyone dies sometime! With the term policy of course the insurance company is counting on not paying the death benefit out on over 90% of the policies it issues.

The issue of life insurance should not be taken lightly if one has a family or dependents. While some people in the United States are fed up paying all the different kinds of insurances and they figure that they don’t need to pay extra for life insurance when they are young, it is important to understand that life insurance can be a life saver after a family member, husband or parent dies.

Whole life insurance covers you for life and it will allow a beneficiary to continue life only having to cope with the issue of death and not having to worry about the economic hits that come with it. Life insurance policies are a must for anyone that has someone that relies on them for support and it’s time for all responsible Americans to realize that.

Getting Started With an Auto Insurance Policy

Auto insurance policy provides extensive coverage for you, your vehicle and third party depending upon the type of insurance policy you have chosen. You have to pay a certain amount as premium and the insurance company pays you for the damage or loss which has been sustained by your car. Car insurance is expensive but also the best way to be secure in time of crisis such as a theft or accident of your precious automobile. There are different types of auto insurance available:

1. Fully comprehensive auto insurance policy: As the name suggests, it is comprehensive because it covers you fully against all types of loss like theft, accident or other damages. You get 100% security with this type of insurance for your vehicle.
2. Third Party: It provides coverage for other person (third party) who has suffered damages by your car. It has to be your fault and is applicable if you own an old vehicle.
3. Third Party (Fire & Theft): This provides third party coverage against loss by fire and theft.
4. Specialized car insurance: This type of insurance is for the vehicles which are 25 years old and which require special services. But before you purchase this type of policies, you have to be sure about the source from which you are going to purchase this policy. You must decide your budget beforehand, as this type of policy is usually expensive.

After deciding your budget, you must select the type of coverage you want for your policy. Discuss your requirements and problems with these companies and choose the policy that is able to provide you with the coverage required by you.

It is important to know what coverage you have before you decide to file your claim and the best time to do this is usually when you get your renewal papers. Quite often, people find out after they have filed their claims, that they were not covered for something or that their deductible is higher than they thought.

Take time to find out the following parts of your insurance policy:

1. Policy declarations: This is the personalized part of your insurance that tells you all about who is covered by the insurance, what type of vehicle is covered, policy number, etc.
2. Coverage: It lists out the costs of each type of coverage and that for the specific insurance like body injury and comprehensive coverage. It also spells out how much your deductibles are.
3. Endorsements: These are changes which your insurance company makes in your policy. Read these endorsements very carefully as they may make changes in the wording and coverage. Read them at the initial stage when you get the insurance policy or at any time when you are holding the policy.
4. Exclusions: These are the factors that may make the insurance company reconsider its decisions of providing an auto insurance policy and may prompt the company to cancel the insurance.
5. Conditions: These are the stipulated points stating the requirements you and the insurance company need to fulfill to maintain the policy such as how you pay your premium or cancel an auto insurance policy.

Understanding your auto insurance policy is very crucial for proper use of the policy in time of need.