Whole Life Insurance
Whole life and other types of permanent coverage are more complicated contracts than term policies. The coverage is for life with no time limit and premiums generally are set at the time of purchase, meaning they will never be increased.
Initially, you pay more than with a term policy. The difference can be viewed as a reserve that is used partly to cover the higher premium requirement in future years. At some point in the future the reserve may even cover all future premiums meaning the policy is said to be paid up.
The reserve is also used to generate a cash value for policyholders. This cash value can be used in a number of ways:
• You can borrow from the insurer, usually up to 90 per cent of the balance.
• You can use it to pay your premiums.
• You can discontinue coverage and convert the cash value into income.
• You can cancel the policy and receive the cash surrender value (generally the same as the cash value).
Despite the name, Term 100 is really a permanent contract. You pay fixed-level premiums and receive coverage to age 100. If you live to age 100, the policy terminates but you receive a cash payment equal to the face value or more depending on the contract terms.
Many Term 100 policies do not have a cash value that can be accessed during the life of the policy. As a result, Term 100 is sometimes described as stripped-down whole life contract and is less expensive than traditional Whole Life Contracts.
Universal Life (UL Contracts) keeps the savings and insurance components completely separate.
Within policy limits, you are able to determine how much or how little you want to pay into the reserve (cash value). Or you can even pay a single premium to fund the entire policy. UL contracts also offer a number of investment choices for the reserve or cash values and you are able to withdraw cash from it, not just borrow against it like Whole Life contracts.