What are the different types of whole life policies available for purchase?
There are several types of Whole Life Insurance Policies that commonly marketed by Fiancial Institutions today. However, the most commonly types of policies that being marketed today are as follows;
1. Non-Participating Whole Life Insurance
A non-participating whole life policy has a level premium and fixed face amount during your entire life. The advantages of such a policy are its premiums are fixed and relatively inexpensive. However, this type of policy is non-participating and does not pay you any dividends.
2. Participating Whole Life Insurance
This type of whole life policy actually pays its policy holder dividends, hence the name Participating Whole Life Insurance Policy. You may wonder where the dividends are coming from! Well, the dividends are generated from the "favorable experience of the company" and result from excess investment earnings, favorable mortality and expense savings.
It is worth noting that Dividends can be paid in cash, used to reduce your premium payments, left to accumulate at a specified rate of interest or they may be used to purchase paid-up additional insurance which will increase your face amount of coverage. It is worth noting that these "Dividends are not guaranteed to be paid to you" as they are based on the companies performance.
3. Level Premium Whole Life Insurance
A Level premium whole life insurance features premium payments that are level or fixed and the life insurance premiums are required to be paid as outlined in the contract (Monthly, Quarterly, Semi-Annually or Yearly) as long as the insured is living.
"In the initial years of the policy, the insuarnce premium is more than sufficient to pay the current cost of insurance protection. The excess, including interest earnings, makes up the deficiency of premiums in later years when annual premium is not sufficient to pay annual cost of insurance."
The Insurance Companies will actually invest these extra premiums according to the Risk Tolerance of the policy owner, thereby creating the "cash value" of the policy.
4. Single Premium Whole Life Insurance
A "Single Premium Whole Life Policy is a whole life insurance plan with one large premium payment due at issuance of the policy." Therefore, one of the features of this type of policy is that it is fully paid up and there are no further premiums to be paid.
As a result of the single premium payment at the inception of the policy, this type of policy will have an "immediate cash value and loan value" which could be fairly substantial depending on the amount of the single premium payment.
This type of plan is sometimes considered by Financial Planners more as an investment-oriented type of whole life insurance product.