Whole life insurance , or whole life insurance (at Commonwealth of Nations), sometimes called "straight life" or "ordinary life", is a life insurance policy that is guaranteed to remain apply to the entire life of the insured, provided that the required premium is paid, or until the due date. As a life insurance policy, it is a contract between the insured and the underwriter that as long as the terms of the contract are met, the insurer will pay the death benefit of the policy to the policy beneficiary when the insured dies. Since a lifetime policy is guaranteed to remain in effect as long as the required premium is paid, the premium is usually much higher than term life insurance where the premium is set only for a limited period of time. The entire lifetime premium is set, based on the age of the problem, and usually does not increase with age. Insured parties usually pay a premium to death, except for a limited payment policy that may be paid in 10 years, 20 years, or at the age of 65 years. All life insurance includes the cash value category of life insurance, which also includes universal life, variable life, and endowment policies.
Video Whole life insurance
Benefits of Death
The death benefit of a lifetime policy is usually the nominal amount stated. However, if the policy "participates", the death benefit will increase with the accumulated dividend value and/or decrease by each outstanding policy loan. (see examples below) Certain drivers, such as the Accident Death benefit may exist, which could potentially increase benefits.
In contrast, universal life policies (flexible premium lifetime surrogates) can be structured to pay for cash value in addition to face counts, but usually do not guarantee lifetime coverage in the case.
Maps Whole life insurance
Maturity
The lifetime policy is said to be "mature" at death or 100 years of age, whichever comes first. To more precisely the due date will be "the closest age policy warning 100". The policy becomes "mature endowment" when the insured person lives past the stated age of maturity. In that case the policy owner receives an advance amount in cash. With many modern life policies, issued since around 2000, the age of maturity has been increased to 120. The increased age of maturity has the advantage of preserving the tax-exempt nature of death benefits. Conversely, a mature endowment may have a large tax liability.
Taxation
All death benefits of a lifetime policy are exempt from income tax, except in unusual cases. This includes all internal benefits in cash value. The same applies to group life, term life, and accidental death policies.
However, when policies are diluted before death, treatments vary. With cash surrender, any profit on the total premium paid will be taxed as ordinary income. The same is true in terms of mature endowments. This is why most people choose to take the cash value as a "loan" to the death benefit rather than "surrender". Money taken as a loan is exempt from income tax as long as the policy is still in effect. For a participating lifetime policy, the interest charged by an insurance company for a loan is often less than the dividend every year, especially after 10-15 years, so the policyholder can repay the loan using dividends. If the policy is submitted or canceled before death, any loan received above the cumulative value of the premium paid will be taxed as investment growth.
It should be emphasized that, while life insurance allowances are generally exempt income tax, the same is not true for land tax. In the US, life insurance will be considered part of a person's taxable land if he has a "possession incident." Plantation planners often use special irrevocable trusts to protect life insurance from real estate taxes.
Usage
Personal and family use
Individuals can find the whole life of interest as it offers coverage for indefinite periods. It is the dominant choice to insure so-called "permanent" insurance needs, including:
- Funeral expenses,
- Land planning,
- Ends from partner earnings, and
- Additional pension income.
Individuals may find the whole life less attractive, due to a relatively high premium, to insure:
- Big debt,
- Temporary needs, such as child-dependent years,
- Young families with large needs and limited incomes.
In the second category, term life is generally considered more suitable and has played an increasingly large role in recent years.
Business use
Businesses may also have legitimate and attractive needs, including funding:
- The buy and sell agreement
- The death of a key person
- Additional executive retirement plan (S.E.R.P.)
- The compensation is suspended
While the lifetime may be appropriate for the Sale and Purchase Agreement and Key Person indemnity, cash value insurance is almost exclusively for Deferred Comp and S.E.R.P.'s.
Premium Level
The premium lifetime insurance rate (sometimes called regular lifetime, though the term is also sometimes used more extensively) provides coverage of life-long death benefits to premium rates.
Lifetime premiums are much higher than term insurance premiums, but as term insurance premiums increase with the age of the insured, the cumulative value of all premiums paid under the overall policy and the term is more or less the same if the policy continues to reach the average life expectancy. Part of the insurance contract stipulates that the policyholder is entitled to a cash reserve that is part of the policy and is guaranteed by the company. This cash value can be accessed at any time through a policy loan received on income tax and paid back in accordance with the agreed schedule. These policy loans are available until the death of the insured. If there is an outstanding loan amount - that is, unpaid - after the insured's death, the insurer reduces that amount from the nominal value/death benefit of the policy and pays the rest to the policy beneficiaries.
Whole life insurance can prove a better value than the time period for a person with an insurance requirement of more than ten to fifteen years due to favorable tax treatment on the interest credited to the cash value. However, for those who can not afford the necessary premiums to provide sufficient lifetime coverage for their current insurance needs, it would be wise to buy less than enough coverage as a lifetime insurance rather than buying an adequate rate to cover their current needs..
While some life insurance companies market entire lives as "death allowance with savings accounts", the difference is artificial, according to life insurance actuaries Albert E. Easton and Timothy F. Harris. A risky net amount is the amount that the insurer must pay to the beneficiary if the insured dies before the policy accumulates a premium equal to the death benefit. This is the difference between the current cash value of the policy (that is, the total paid by the owner plus the amount of interest income) and the nominal value/death benefit. Although the actual cash value may differ from the death benefit, in practice the policy is identified by the nominal value/death benefit of the original.
The advantage of life insurance is the guarantee of death; guaranteed cash value; fixed premiums, can be predicted; and mortality and cost of expenses that do not reduce the cash value of the policy. The disadvantage of all life is the inflexibility of premiums and the fact that the policy's internal rate of return may not be competitive with savings and other investment alternatives.
The amount of death allowance from a lifetime policy can also be increased through the accumulation and/or reinvestment of the policy dividend, although this dividend is not guaranteed and may be higher or lower than the income with interest rates available from time to time. According to internal documents of several life insurance companies, the internal rate of return and dividend payments realized by the policyholder are often a function when the policyholder purchases the policy and how long the policy remains in effect. Dividends paid on a lifetime policy can be used in many ways.
Life insurance guidelines define the policy dividend as a refund of premium surplus payments. Therefore, they are not exactly like corporate stock dividends, which is a payment of net income from total revenue.
Modified life insurance has a smaller premium for a certain period of time, followed by a higher premium for the rest of the policy. Life insurance for life is a life insurance that insures two lives, with the result paid after the second death (later). The premium rate system generates more pay for the risk of dying at a young age, and underpayments in the coming years towards the end of life.
Backup
Excessive payments attached to a premium rate system mean that most of the costly old elderly fees are paid upfront during a person's young years. US. Life insurance companies are required by state regulations to prepare reserve funds to take into account overpayment, representing promising future benefits, and are classified as a Life Insurance Backup Company. The benefits of Death promised by the contract are fixed obligations which are calculated to be paid at the end of life expectancy, which may be 50 years or more in the future. (see non-forfeiture value)
Most of the visible and obvious wealth of Life Insurance companies is due to the enormous (reserve) assets they have in order to sustain future liabilities. In fact, reserves are classified as liabilities, as they represent liabilities to policyholders. These reserves are primarily invested in bonds and other debt instruments, and thus are a major source of financing for government and private industry.
Value cash
The cash value is an integral part of the lifetime policy, and reflects the necessary reserves to guarantee the payment of guaranteed death benefits. Thus, the value of "cash surrender" (and "loan") arises from the right of the policyholder to exit the contract and to recover part of the reserve fund associated with the policy. (see #Examples of non-forfeiture values ​​below)
Although life insurance is often sold with a view to "life benefits" (cash accumulation and dividend value), this feature is a by-product of the contract premium rate. The original intent was not to "coat sugar" products; but rather an important part of the design. However, prospective buyers are often more motivated by the thought of being able to "count my money in the future." Policies purchased at a younger age will usually guarantee a cash value greater than the sum of all premiums paid over several years. Sales tactics often attract this self-interest (sometimes called "greed motif"). This is a reflection of human behavior that people are often more willing to talk about money for their own future than to discuss provisions for the family in the event of an early death ("fear motive"). On the other hand, many policies are purchased because selfish motives will be an important family resource in the future when needed.
Marketing of all life (and other cash value policies) as a substitute for savings and investments is considered controversial in some quarters. Sometimes the regulatory body prohibits the use of the word "savings" or "investments" by the sales staff when explaining life insurance, insisting that life insurance should only be for "protection" against the economic dangers of death.
When discontinuing a policy, under the Standard Non-Foreclosure Act, the policyholder is entitled to receive his share of the reserve, or cash value, in one of three ways (1) Cash, (2) Reducing Paid Insurance, or (3) Insurance long-term.
Pricing method
Not participating
All policy-related values ​​(death benefits, cash surrender values, premiums) are usually determined on policy issues, for contract life, and are usually not subject to change once issued. This means that the insurer assumes all future performance risks versus the actuary estimates. If future claims are underestimated, insurance companies will make a difference. On the other hand, if the actuary estimates of future mortality claims are high, the insurance company will maintain the distinction.
A non-participation policy is usually issued by a stock company, with shareholder capital taking risks. Since lifetime policies often cover more than 50 years span, it can be seen that accurate pricing is a formidable challenge! The actuary should set a level that would be sufficient to keep the solvent company through prosperity or depression, while remaining competitive in the marketplace. The company will face future changes in life expectancy, unexpected economic conditions, and changes in the political landscape and regulations. All they have to guide them is past experience.
Participate
In the participating policies (as well as the "par" in the United States, and known as the "profit policy" in Commonwealth), insurance companies share the excess profits (surpluses that can be shared) with policyholders in annual dividends. Usually this "refund" is not taxable as it is considered as an overpayment of premium (or "basic deduction"). In general, the greater the price the company pays, the greater the return/dividend ratio; However, other factors will also affect the size of dividends. For mutual insurance companies, participation also implies a degree of ownership towards mutuality.
Participating policies are usually (though not exclusively) issued by the Mutual life insurance company. However, stock companies sometimes issue participating policies. Premiums for participating policies will be higher than comparable non-par policies, with the difference (or, "overcharge") considered to be a "paid surplus" to provide a margin for error equivalent to shareholder capital. It should be emphasized that illustrations about future dividends are never guaranteed.
In the case of joint enterprises, unnecessary surpluses are distributed retrospectively to policyholders in the form of dividends. Sources of surplus include conservative pricing, death experience more favorable than anticipated, overpayment, and operating cost savings.
While the term "overcharge" is technically true for tax purposes, actual dividends are often a factor much larger than those implied by the language. For the duration of the 1980s and '90s, it was not uncommon for annual dividends to exceed the total premiums in the 20th year of policy and beyond. {Milton Jones, CLU, ChFC}
With non-participating policies, unnecessary surpluses are distributed as dividends to shareholders.
Similar to non-participating, except that premiums may vary from year to year. However, the premium will never exceed the maximum premium guaranteed in the policy. This allows companies to set competitive prices based on current economic conditions.
Variations
Economy
A combination of participating and futures life insurance, in which a portion of the dividends is used to purchase additional insurance. This can generally result in higher mortality benefits, with a fee for long-term cash value. In a few years of policy, dividends may be under projection, which causes death benefits in those years to decline.
Payment is limited
Limited payment policies may be either participating or non-par, but rather than paying annual premiums for life, they are only due for certain years, such as 20. This policy can also be set to be paid in full at a certain age, such as 65 or 80. The policy itself continues for the life of the insured. These policies will usually be more expensive, because insurance companies need to build up sufficient cash value in the policy during the payment years to fund the policy for the rest of the insurance period. With participating policies, dividends may be applied to shorten the premium payment period.
A limited form of payment, in which the payout period is a large single payment in advance. These policies usually have costs during the early policy years if the policyholder monitors them.
Sensitive interest
This type is quite new, and is also known as the "flower overload" or "current assumption" of a lifetime. Policies are a mixture of all traditional life and universal life. Instead of using a dividend to increase the accumulated cash value that is guaranteed, interest on the cash value of the policy varies with current market conditions. Like all life, the benefits of death remain constant for life. As with universal life, premium payments may vary, but not above the maximum premium guaranteed in the policy.
Requirements
Life insurance as a whole usually requires the owner to pay a premium for the life of the policy. There are some arrangements that allow the policy to be "paid", which means that no further payment is required, at least within 5 years, or even with a large premium. Usually if the payer does not make a large premium payment at the beginning of the life insurance contract, then he is not allowed to start making it at a later date in the life of the contract. However, some lifetime contracts offer motorists for policies that allow for one-off, or occasional, large additional premium payments to be made as long as extra payments are made on a regular schedule. In contrast, universal life insurance generally allows more flexibility in premium payments.
Warranty
The company will generally ensure that the cash value of the policy will increase annually regardless of the company's performance or its experience with death claims (again compared to universal life insurance and universal life insurance variables that can increase costs and lower the cash value of the policy). Dividends can be taken in one of three ways. The policy owner may be given a check from the insurer for dividends, the dividends may be used to reduce premium payments, or the dividends can be reinvested into policies to increase the benefits of death and cash value at a faster rate. When dividends paid on a lifetime policy are selected by the policy owner to be reinvested into the policy, the cash value may increase at a substantial rate depending on the performance of the company.
The cash value will increase deferred tax with compound interest. Although growth is deemed "tax-deferred," any loan taken from that policy will be tax-exempt as long as the policy remains in effect. In addition, the death allowance remains tax free (meaning no income tax and no property tax). When the cash value increases, the death allowance will also increase and this growth is also not taxable. The only way to get the tax is because the policy is (1) if the premium is paid with the pre-tax money, (2) if the cash value is "withdrawn" from the past base rather than "borrowed", or (3) if the policy gives up. Most lifetime policies may be submitted at any time for the sum of the cash value, and income tax will usually only be placed on the profit of the cash account that exceeds the total premium expenditure. Thus, many use lifetime insurance policies as a pension vehicle rather than for risk management.
Liquidity
The cash value is considered a liquid asset because it is easily accessible at any time, usually by phone call or fax to an insurance company requesting a "loan" or "withdrawal" from the policy. Most companies will transfer money to the policyholder's bank account within a few days.
The cash value is also sufficiently liquid to use for investment capital, but only if the owner is financially healthy enough to continue to make premium payments (Single lifetime premium policy avoids the risk of insured fails to make premium payments and is sufficiently liquid to use as collateral Single premium policy requires the insured to pay a one-time premium that tends to be lower than separate payments. Since this policy is fully paid at the outset, they have no financial risk and are sufficiently liquid and safe to use as collateral under a collateral assignment insurance clause.) Access to cash value is tax-exempt up to points total premiums paid, and the remaining accessible tax-free in the form of policy loans. If the policy misses, the tax will mature on an unpaid loan. If the insured dies, the death benefit is reduced by the amount of the loan balance.
The internal rate of return for participating policies may be much worse than universal life and interest-sensitive lives (whose value is money invested in money and bond markets) because their cash value is invested in life insurance companies and general accounts, which may be in real estate and stock market. However, universal life policies have a much greater risk, and are actually designed to end. Universal variable life insurance can outperform all life because owners can direct investment to sub-accounts that may be better. If an owner wants a conservative position for his cash values, a lifetime par is shown.
The reported value of money may appear to "disappear" or become "lost" when the death benefit is paid out. The reason is that the value of cash is considered part of the death benefit. Insurance companies pay cash value with death benefits because they are mutually inclusive. This is why borrowing from cash value is not taxable as long as the policy is in effect (because the death allowance is not taxed).
See also
- Life insurance
- Permanent life insurance
- The Decline Theory of Responsibility
References
External links
Source of the article : Wikipedia
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