Whole life insurance policies are a type of permanent insurance policy. They provide lifelong protection, even if you stop paying premiums after a certain age. Only very few types of insurance policies last for your whole life, and most do not have guaranteed premiums after a number of years. Whole life insurance works differently from term life insurance - the kind you buy for a specific period of time - in that it has no end date. As long as you continue to pay your premiums, your policy is valid and coverage stays with you until death.
This article will explain how whole life auto insurance works, including information about the cost and benefit of this type of plan so that you can make an informed choice.
A whole life policy's cost is made up of two components:
The insurance company's expenses for underwriting, marketing and administering the policy;
The return the insurance company expects to earn on your premiums when they are invested. The longer it will take to fully invest your premiums, the higher this second figure is likely to be. Insurance companies invest their pool of collected funds in a range of stocks, bonds and property so that they can pay out on claims while still being able to cover administration costs. The money you have paid in premiums is not just sitting in a bank account for you or earning low interest rates. Your premiums represent an investment with your insurance company.
How Does Whole Life Insurance Work?
The premiums for whole life insurance are fixed. You pay the same amount every month until your policy expires or you stop paying premiums.
If you want to get out of your whole life auto insurance, you can surrender it and get back part of the money you paid in premiums based on how long it has been in force. This is called partial surrenders. Your insurer will set an amount they will give up front before any gains have accumulated, so if your policy is very new, you may not get anything back yet. Your insurer also charges a fee to cover costs when taking out a partial surrender, which means less is returned to you directly from this type of transaction. In most cases, your premiums will not be returned to you should you stop paying for this type of insurance. In that case, the policy becomes a term life insurance plan where you can no longer pay premiums and it lasts for a certain period of time only.
Conclusion
When someone dies while their life insurance policy is in force, the money from a whole life or universal life plan goes directly to the beneficiaries named in the contract. There are two types of whole life plans: participating and non-participating. With a participating plan, part of the premium you pay each month is invested back into the company - this reduces any profit they would have made if they just collected your money without investing it. If there's a large surplus after all claims have been paid, the difference is given back to policyholders who are participating in this type of plan.
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