Whole life insurance
There are many types of cash value insurance but the most important is type is “whole life” or “permanent life” insurance. Whole life insurance policies remain the same as long as the premiums are paid. However, whole life insurance differs from term insurance policies. First, the premiums for a whole life insurance policy are primarily much higher than for term insurance for the exact amount of insurance protection. Second, unlike the premiums for term insurance, whole life premiums do not increase they are set throughout the payment period. Third, whole life insurance policies develop a cash value which increases each year. When you pay the premiums on a whole life policy, part of each payment accumulates as a cash value. The insurance company typically invests the cash value, set aside as a reserve to be used to pay part of the death benefit should the policy holder die. This reserve serves as the basis for a policy’s cash value. The cash value of a whole life policy continues to increase tax deferred as long as the policy is in force. You can borrow against the cash value, but unpaid policy loans and interest will be subtracted from your death benefit. You may also access your cash value by canceling the policy. However, if you do this, you'll be left without this insurance coverage. A whole life policy can be viewed as a combination of an increasing saving element (cash value) and a decreasing amount of pure life protection. This is because as the cash value of the policy increases the actual amount of death protection being purchased decreases correspondingly to the sum of the cash value and the death protection always equals the face amount of the policy. The increasing cash value also explains why whole life insurance stays the same throughout a person’s life. Even though the chances of dying and thus the cost of pure death protection that must, in effect, be purchased. With that being said, like other types of...
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