Whole Life

Whole Life

Whole life insurance belongs to the permanent insurance products. Generally, premiums are level for life, unlike temporary Term insurance premiums, which increase over time.

With Whole life insurance you are overpaying premiums in the early years of the policy. This overfunding is then saved up or reserved inside the policy to pay for the increasing costs of insurance while keeping your premiums level. In other words, you pay more now to pay less later.

Now, if you cancel the policy after a period of time, the companies will typically refund you a portion of that overpayment in premium. This is known as a Cash Value or Cash Surrender Value. It is important to carefully review each company's Cash Values as some may be negligible. Please also note that most of that Cash Value will be a refund of overpayment in premium (Participating Whole Life insurance), NOT some sort of investment.

In past years, many insurance companies were mutual. Mutual companies typically declared a non-guaranteed dividend to participating policyowners. These dividends were then used to automatically create various other options including small units of paid-up insurance, or increasing Cash Value, or one of 2 or 3 other options. Dividends were projected as being used to pay-up premiums in later years.

IMPORTANT: In the 1980’s and later, dividends being paid out did NOT meet earlier projections and as a result many policy owners had policies they had assumed would have premiums, which became paid-up but in reality did not. Consumers then launched various ‘Vanishing Premium’ lawsuits against insurance companies and were successful with these suits. Recently, people have been complaining that they have "Vanishing Death Benefit" as their estimated projected dividends were intended to support the Death Benefit and were inadequate to do so. The result is that some people's policies either lapse or the Death Benefit shrunk considerably to what it was expected to be.

Today Whole Life insurance is still available, however there are permanent insurance products available today, which provide better guarantees at a lower cost such as Term to 100 and Universal Life. At First Rate Insurance, we do not recommend this type of insurance contract.

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