Insurance Product Choices

Whole Life or Permanent Insurance. Permanent life insurance is a form of life insurance such as whole life or endowment, where the policy is for the life of the insured, the payout is assured at the end of the policy (assuming the policy is kept current) and the policy accrues cash value. Permanent life insurance originally was offered as a fixed premium fixed return product known as whole life insurance. This offered consumers guaranteed cash value accumulation and a consistent premium. The cash value that accrues is legal defined as "unused premiums" as that is exactly what it is. Whole life insurance is designed to insure the individual up through age 100. As such, the premium dollars are substantially high in the younger years since you are not paying for only one year of risk but instead are paying through age 100. One of professed benefits of this type of insurance is that the premiums never change and remain constant throughout the life of the insured making the policy valuable for for older individuals as they will be able to afford the premiums later on in life. But, that is because they have been paying on the policy for their entire life.

If an individual lives to age 100, and they own a whole life insurance policy, then the policy matures at that point as the individuals has statistically reached the mortality rate for which the actuary tables were created and they have, for all intents and purposes, outlived the premiums and can receive them back in the form of the cash value the policy has accrued. Remember, the cash values are not a savings program in a whole life insurance policy, but are legally "unearned premiums" and therefore are the insurance companies property. This is why you must borrow the cash value that accumulates in the policy over time. In the unfortunate event of death, any cash value stays with the insurance company and the beneficiary of the deceased receives the face amount of the life insurance policy.

Universal life insurance is a permanent life insurance policy that works on the premise of "buy term and invest the difference." The cash value that accumulates in the policy does so in a holding-bin type of account where the actual cost of insuring against the risk of dying (mortality rate expenses) are charged. Although the premiums remain constant like those of a whole life insurance policy, if the actuarial cost of the insurance rises, or if the fees and other expenses charged against the policy increase, or if the cash value accumulating in the policy reaches the point, due to these kinds of fees and expenses, where it no longer is sufficient to cover these cost, then the policy goes into remission and the insured either raises the premium to keep the policy in force or the policy is cancelled.

Variable Life Insurance

Variable life insurance is another form of whole life insurance and is similar to how Universal life insurance works. The difference between these two policies is that the cash values in a Variable life insurance policy are not held in any kind of money market or holding fund as they are in Universal life insurance policies, but instead can be invested in stocks or other mutual fund types of accounts that are offered by the insurance company. Although the potential exists for the cash value to increase at a much faster rate of return, the possibility also exists for the policy to cancel itself sooner due to unforeseen or volatile market conditions associated with the stock market. If the amount of cash value within the policy is insufficient to pay the actuarial cost of the insurance benefit and the other fees associated with the policy then the insured will have to pay the difference in the form of higher premium dollars or risk the policy terminating.