Whole Life Insurance

Once you have determined that you do indeed need life insurance coverage, you may choose to purchase a whole life insurance policy. It's important to understand the differences in life insurance coverage before you sign on the dotted line. In the following paragraphs, we'll discuss life insurance in general and we'll explore what whole life insurance is so that you can best determine your life insurance needs.


1. Who Needs Life Insurance?

If someone depends on your income then you need life insurance. This is true whether you have a modest income or a very large income. Even though many households are comprised of two wage earners today, it is still a financial shock when one of those wage earners passes away and the other one still has the burden of all the bills and living expenses.

Sometimes, the very people that lose sleep over the fear of losing their jobs, wondering how they will pay the bills with only one salary in the family, choose not to purchase term or whole life insurance. It's not that they're selfish; it's just that most of us don't like to think about death, especially our own and many of us are convinced we won't die for a very long time anyway.

Even if you're single with no children, you may still need life insurance to pay for funeral expenses. While you most certainly wouldn't need as much life insurance coverage as someone with a large family, it is still a good idea to make sure you have planned for your final expenses to be covered, regardless of your age. You can easily get whole life insurance quotes online or by visiting with a local insurance agent.

2. Choosing Between Term and Whole Life Insurance

Once you have decided you do indeed need life insurance coverage, how do you know which type of coverage to choose? The two most common types of life insurance are term and whole life insurance and we'll briefly discus both. While there are advantages and disadvantages of both, a thorough assessment of your needs and circumstances is needed to make an informed decision.

Term life insurance usually has cheaper premiums and is offered for a specified amount of time, usually from 1-10 years, although the term often can be renewed. This type of life insurance is often recommended for those who only intend to keep the policy for a few years. Term insurance pays the face value of the policy upon the death of the insured.

Whole life insurance, which usually has higher premiums, may offer a larger payout than term life insurance because the policy builds value the longer it is held. Premiums for whole life insurance are usually paid the entire time the person holds the policy, although there are some whole life insurance plans that offer a set amount of payments, while the insurance coverage continues for life.

Whole life insurance policies can be cashed in before the insured passes away once the policy has amassed a certain value. In addition, those insured with whole life insurance policies may be able to borrow against the value of the policy.

There are different types of whole life insurance policies; some will have a guaranteed rate of interest while others won't. If you are considering whole life insurance, be sure and investigate the terms up front so you will understand which type you are indeed purchasing.

3. Benefits of Whole Life Insurance

While term life insurance policies only offer death benefits, whole life insurance can build cash value and, consequently, can offer a nest egg while you are still alive. Since it generally takes 10 or more years for whole life insurance policies to build cash value for the insured, this is the type of life insurance you will want to consider when you plan to keep your policy for many years.

Another benefit of whole life insurance is that you can lock in the cost of the premiums, thus paying the same for the coverage each year; conversely, the premiums for term insurance go up at the end of each term of coverage. With whole life insurance, you (or your beneficiary) will enjoy a cash payout whether you live or die; if you die, your beneficiary gets the life insurance proceeds and if you live, you can borrow against the cash value or cash the policy in altogether. Depending on the type of whole life insurance coverage you choose, you may even cash in many more times than the premiums you paid over the course of say, 20 or 30 years.

4. How Much Life Insurance do You Need?

It can be difficult to determine just how much life insurance coverage you need, whether you choose term or whole life insurance. This is a personal choice, of course, and you will want to make this decision based on a variety of factors. Things to consider when determining the amount of life insurance coverage you need are such things as whether or not your home is paid for or if the remaining spouse or child would need life insurance proceeds to be able to pay for the family home.

Are you supporting young children or helping to fund a college education? How many more years will you need to support dependent children? This is an important question to ask yourself because that will have a direct bearing on the amount of coverage you choose. You may wish to take your yearly salary and multiply it by the number of years that it will be needed to pay critical expenses, such as a house payment or even expenses related to the raising of your children.

In addition, once you have arrived at an amount of coverage with which you feel comfortable, don't forget to re-evaluate your circumstances annually. Life changes in ways that surprise us sometimes and our financial needs change too. While you want to offer your loved ones, as well as yourself, the peace of mind that comes with knowing they will be protected should anything happen to you, it is relatively easy to change the amount of life insurance coverage that you have, whether you decide you need more or less coverage.

5. Determining the Contributions of a Stay-at-Home Spouse

Couples who consider insuring each other's lives with whole life insurance sometimes elect not to take out coverage on the spouse that stays at home and cares for the children. However, many families have come to realize the extent of the market value of the services the stay-at-home mom or dad provides and elect to insure the life of that spouse even though they don't earn a living.

There's good reason for this because, even though that spouse may not earn money, the surviving spouse would have to pay for those services in the event of the stay-at-home spouse's death. We're not just talking about babysitting, either. Not only will the surviving spouse have to pay someone to care for the children, but he or she may also have to pay someone to clean the house, cook the meals, and chauffer the children around. When you stop and think about all the services provided not only to the children, but to the entire household by the stay-at-home parent, you can see why it is prudent to consider taking out a whole life insurance or other type of life insurance policy on that person.

6. Should You Change Your Life Insurance Policy?

You may be tempted from time to time to change your whole life insurance or other type of life insurance policy, especially if you are presented with an offer for lower premiums but there are some things you should take into consideration before you make that change. For example, if you have already paid into a whole life insurance policy for several years, you don't want to have to start over building cash value. Even if you should elect to change to a term policy, you might forfeit the funds you have taken years to build up in your present policy.

Another consideration when thinking of changing life insurance policies is whether or not you will be required to undergo a medical exam. While you can get whole life insurance, no medical exam required, you may have to start a policy with a 2-year waiting period, which could be dangerous if something should happen to you during that time. If the only reason you are considering switching life insurance policies is for the cheaper premiums, be sure and take into account the whole picture before you make the switch.

7. Purchasing Whole Life Insurance with no Medical Exam

There are circumstances where you can purchase whole life insurance with no medical exam, even when you are getting on in years but you should be aware of any waiting periods specified by the policy. Some polices that require no medical exam may not specifically have a waiting period, but they may offer limited coverage for a pre-specified period of time, such as two years. That way, if you should pass away within the first two years, your beneficiary may only receive part of the face value of the policy.

Even when you do take out life insurance coverage with no medical exam, you are required to be honest about any medical conditions you may have. If you should pass away and the insurance company finds out you had a condition that you were not honest about, they may decline to pay the claim. You will want to read all the fine print and disclose any conditions that you are aware that you have when you take out this kind of policy.

The good news is that even if you should develop a serious medical condition after you have taken out a policy for which no medical exam was required, you will, in all likelihood, still be covered as long as you did not have that condition or at least were not diagnosed with that particular condition when you first took out the policy. That is one reason why it is smart to take out life insurance when you are young and keep it for many years so that you will still be covered even if you develop certain medical conditions.

8. Taking Your Life Insurance with You when You Leave Your Job

Many employers offer life insurance as part of the overall benefits package to employees and, while it is not possible in every case, some of these policies are indeed portable, meaning you can take them with you when you leave your employment with your company. This is a good question to ask your employer or the benefits director at your place of employment when you decide to leave your job. This may be especially important if you do not want to have to succumb to a medical exam in order to get life insurance elsewhere.

When you are able to take your employer sponsored group life insurance with you, you will no longer be getting the group rates; the policy will then convert to an individual policy and you will be required to keep up the premiums; however, if you were to take out an individual life insurance policy after you leave your employment, the same would apply.

While many people now realize they can continue their health insurance coverage through COBRA after they leave their employment, employer sponsored life insurance policies are often overlooked and the coverage is simply dropped when the employment is terminated. Even though all group insurance policies won't be able to be converted to individual policies, it doesn't hurt to ask and you may be in a better position if you are able to keep your current life insurance policy active.

9. Collecting on a Life Insurance Policy

Where do you begin if you are the beneficiary of someone else's life insurance policy? If you are the beneficiary, chances are you were close to the deceased and you may be so busy grieving at your loss, it may not occur to you that you need to file a death claim. On the other hand, you may need to file a death claim in order to pay for the funeral and if this is the case, you'll want to get started as soon as possible after the death.

The first thing you'll need to do is to notify the insurance company of the death and they will help you to proceed from there. If you are the beneficiary of an employer sponsored group life insurance policy, chances are the benefits director will handle everything for you and you will just need to supply the required documentation, such as the death certificate, once it becomes available, usually within a week or 10 days of the death.

If you do need to deal directly with the insurance company, they will send you a claim form to complete and sign and send back to them, along with any other supporting documentation, such as the death certificate. Just be sure and keep the lines of communication open and ask questions if you need help. In most cases, death claims are handled with dignity and the people at the insurance company are more than willing to help you with the process.
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