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Whole life insurance, also known as "cash-value"
insurance, is a simple and reliable form of permanent life insurance, which stays in effect for your entire life at a flat
premium. If you don't anticipate changes in your life insurance needs over your lifetime, whole life insurance is a practical
option. A portion of your premium goes into a reserve fund called "cash value" that builds up over the lifespan of your policy.
Your reserves are tax-deferred until you withdraw it and you can borrow against it.
Whole life premiums normally remain constant over the duration of the policy. Premiums are paid
periodically according to the amount designated in the policy. You may also have the option of paying all of the premiums up
front in a single lump sum. The cash value continues to grow until valued at the death benefit amount when you turn 100 years
old.
Before purchasing a whole life plan, think carefully about what level of
coverage you're going to need. Too frequently people either insure themselves inadequately or worse yet, overextend themselves
with a premium they can't afford. Defaulting on premium payments can result in the policy being cancelled and losing the entire
investment. This would be a disastrous mistake.
Words of caution:
* Select a life insurance policy
that has guaranteed cash value beginning the first year.
* Consider "participating" insurance policies that can pay dividends and increase your policy's total cash and death benefit
values.
* Select the policy which provides the highest cash value in the very first year.
* Avoid any insurance policy that levies "surrender charges" when you cancel.
* Select a policy that allows you to keeping your coverage current by using the accumulated cash value of the policy to pay the
premiums, if you're ever unable to pay the premium.
Whole life insurance policy returns fluctuate with the markets. They usually
follow returns available from other investments such as equity mutual funds. If you ever decide to cancel your policy, the cash
value can be paid in cash or in a paid-up insurance plan.
Whole life insurance is appropriate when you plan to use it
to:
* Pay final expenses;
* Provide key-person protection;
* Accumulate cash value for a child's education or your retirement;
* Use it as a tax and estate planning vehicle;
* Fund a business buy/sell agreement; or
* Provide money for a favorite charity.
The drawback is that whole life insurance is very
expensive. You may not be able to afford all the insurance coverage you actually need, if you're on a limited budget. The primary
advantage is that the death benefit is guaranteed for as long as premiums continue to be paid. And should you ever borrow against
it, the death benefit will never be lowered.
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