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Why Whole Life Insurance?

It’s a preferred solution to ensure the financial security of your loved ones.

Whole life insurance product is designed to protect your family’s financial security. Whether you’re planning your life together, buying a property, having a baby, starting a business or even planning your retirement, whole life insurance gives you the peace of mind you’re looking for.

What is whole life insurance?

Whole life insurance, or Permanent life insurance, is a life insurance policy which is guaranteed to remain in force for the insured’s entire lifetime, provided required premiums are paid. Whole life insurance policy is a contract between the insured and insurer that as long as the contract terms are met, the insurer will pay the death benefit of the policy to the policy’s beneficiaries when the insured dies. Because whole life policies are guaranteed to remain in force as long as the required premiums are paid, the premiums are typically higher than those of term life insurance. Whole life insurance premiums are fixed, based on the age of issue, and usually do not increase with age. The insured party normally pays premiums until death, except for limited pay policies which may be paid up in 10 years, 20 years, or at age 65. Whole life insurance belongs to the cash value category of life insurance.

Death benefit

The death benefit of a whole life policy is normally the stated face amount. However, if the policy is “participating”, the death benefit will be increased by any accumulated dividend values and/or decreased by any outstanding policy loans. Certain riders, such as Accidental Death benefit may exist, which would potentially increase the benefit.

What is whole life insurance cash value

Whole life insurance cash value is an integral part of a whole life insurance policy, and reflect the reserves necessary to assure payment of the guaranteed death benefit. Thus, “cash surrender” (and “loan”) values arise from the policyholder’s rights to quit the contract and reclaim a share of the reserve fund attributable to this policy.

Although life insurance is bought for “death benefits”. However, prospective purchasers are often more motivated by the thought of being able to count their money in the future. Policies purchased at younger ages will usually have guaranteed cash values greater than the sum of all premiums paid after a number of years. It is a reflection of human behavior that people are often more willing to talk about money for their own future than to discuss provisions for the family in case of premature death (the “fear motive”). On the other hand, many policies purchased due to selfish motives will become vital family resources later in a time of need.

Cash values are considered liquid assets because they are easily accessible at any time, usually with a phone call or fax to the insurance company requesting a “loan” or “withdrawal” from the policy. Most companies will transfer the money into the policy holder’s bank account within a few days. Reported cash values might seem to “disappear” or become “lost” when the death benefit is paid out. The reason for this is that cash values are considered to be part of the death benefit. The insurance company pays out the cash values with the death benefit because they are inclusive of each other. This is why loans from the cash value are not taxable as long as the policy is in force (because death benefits are not taxable).

When discontinuing a policy, according to Standard Non-forfeiture Law, a policyholder is entitled to receive his/her share of the reserves, or cash values, in cash or reduced paid-up insurance. Extended term insurance may be another option.

Types of whole life insurance

Non-participating

All values related to the policy (death benefits, cash surrender values, premiums) are usually determined at the time of the issuance of the policy, for the life of the contract, and usually cannot be altered after issue. This means that the insurance company assumes all risk of future performance versus the actuaries’ estimates. If future claims are underestimated, the insurance company makes up the difference. On the other hand, if the actuaries’ estimates on future death claims are high, the insurance company will retain the difference.

Non-participating policies are typically issued by Stock companies, with stockholder capital bearing the risk

Participating

Participating policy also known as “par”. The insurance company shares the excess profits (divisible surplus) with the policyholder in the form of annual dividends. Typically, these “refunds” are not taxable because they are considered an overcharge of premium (or “reduction of basis”). In general, the greater the overcharge by the company, the greater the refund/dividend ratio; however, other factors will also have a bearing on the size of the dividend.

Premium payment length

Limited pay

Limited pay policies may be either participating or non-par, but instead of paying annual premiums for life, they are only due for a certain number of years, such as 10, 15 or 20 years. The policy may also be set up to be fully paid up at a certain age, such as 65. The policy itself continues for the life of the insured. These policies would typically cost more up front, since the insurance company needs to build up sufficient cash value within the policy during the payment years to fund the policy for the remainder of the insured’s life. With Participating policies, dividends may be applied to shorten the premium paying period.

Taxation

The entire death benefit of a whole life policy is free of income tax, except in unusual cases. This includes any internal gains in cash values. The same is true of group life, term life, and accidental death policies. However, when a policy is cashed out before death, the treatment varies

Whole life insurance pros and cons

Whole life insurance may prove a better value than term for someone with an insurance need of greater than ten to fifteen years due to favorable tax treatment of interest credited to cash values. However, for those unable to afford the premium necessary to provide adequate whole life coverage for their current insurance needs, it would be imprudent to purchase less coverage than is adequate as whole life insurance rather than purchase an adequate level of term to cover their current need.

The advantages of whole life insurance are its guaranteed death benefits; guaranteed cash values; fixed, predictable premiums; and mortality and expense charges that do not reduce the policy’s cash value. The disadvantages of whole life are the inflexibility of its premiums and the fact that the internal rate of return of the policy may not be competitive with other savings and investment alternatives.

Contact Final Expense Ontario’s insurance advisor today to start working on your Whole Life Insurance plan.

Final Expense Ontario is here to help you find accommodating Whole Life Insurance policies. We help you make your decision with total peace of mind. Call now for a no obligation free consultation 1-800-593-1817 or Get Quote