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Whole Life Insurance Basics

Whole Life Insurance Basics

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Published by tomfish444

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Published by: tomfish444 on Feb 16, 2012
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02/16/2012

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 ==== ====Tom Fischer is a Life Insurance Specialist in Scottsdale. Purchase life insurance in Scottsdale,keeping in mind that life insurance does not insure lives. Seat belts insure lives. A life insurancespecialist in Scottsdale can insure a standard of living, a way of life dependent upon continuity ofincome that will someday stop.http://arizonafinancialplan.com/life-insurance/  ==== ====If you're shopping around for life insurance, you start with two big questions: How much insurancedo I need? And what type of policy should I buy? When you've calculated your short- and long-term obligations, it's time to decide what type ofpolicy is right for you: term life or whole life insurance. Term life insurance provides coverage for a specified period of time, such as 10, 15 or 20 years;premiums go up over time unless you buy a "level term" policy, which guarantees that premiumsstay the same. It's possible that you could outlive the term of your policy, in which case your policyexpires and you'd have to shop for another policy if you wish to still have coverage. With a whole life policy (also called permanent insurance), you don't have to worry about possiblyoutliving your policy term because your contract gives you coverage for your entire life, as long asthe premiums are paid. With a whole life policy, unlike term life, you also build up "cash value" inthe policy that you can tap in the future. Premiums are significantly higher for permanent insurance than term life due to charges and fees(see sidebar) that you don't pay with term life. Cash value is a crucial selling point for whole life: It's an account within your policy that builds upover time, tax-deferred, fueled by a portion of your premiums and interest paid by the insurancecompany. In fact, the whole life contract is designed for you to take advantage of that money in thefuture. When you die, your beneficiaries receive the death benefit, not the cash value, with theexception of some universal life policies. Whole life insurance policies[http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x]build up cash value slowly at first but then pick up the pace after several years, when yourearnings start to grow faster than your "mortality" cost (the cost of insuring you). If you would likewhole life insurance explained in more detail, your life insurance agent should be able to show youa few types of policy illustrations. Whole life could be an attractive option for any of these reasons: Others are relying on you for long-term financial support.
 
 You're worried about outliving a term life policy and being unable to buy further insurance due toage or deteriorating health. You want to build up cash value in addition to protecting your beneficiaries. You want to create an estate for your beneficiaries after your death. Your beneficiaries need the benefit to pay estate taxes on other assets. "Whole life insurance is suited for anybody who loves somebody," says Scott Berlin, senior vicepresident in charge of the Individual Life Department at New York Life Insurance Co. "Whole lifedoes two things for you: protects your family and allows you to save for the future." Berlin says whole life's advantages are that you don't have to worry about outliving your policy (asis possible with term life) and there is the "forced savings" component of the cash value account,which grows tax-deferred. Once your cash value is built up, you can access it for anything -retirement, your child's college tuition or the vacation you've always wanted. Whole life policies arealso eligible to earn dividends (depending on the company and not guaranteed) which can beused in a variety of ways, such as providing paid-up additional life insurance, which increases boththe life insurance benefit and policy cash value. "Buying term is like renting your insurance," says Berlin. "You don't build up any residual value.Whole life is like owning a home - you build up equity." Berlin cautions against buying term life insurance just because of the premium difference. "When you're 35 you think that 20 years is a long time, but life doesn't always work out like youthink," he says. "People who buy permanent insurance understand the value of what they'reproviding to their family." If you decide that a whole life policy is right for you but feel you're currently unable to afford thepremiums for the face value you desire, Berlin recommends buying as much whole life as you canafford and filling in the rest of your face amount with term life. Later, you can convert your term lifepolicy to whole life.
 
 For the wealthy with large estates, putting a whole life policy into a trust is a way to pay estatetaxes when they die. A smorgasbord of choices If the features of whole life insurance[http://www.insure.com/quotesmith/controller?REF=99998&reqid=qstermindex&redirx=x]fit the bill for you, there are multiple varieties depending on your needs and your tolerance forfinancial risk.  Ordinary whole life insurance: Premiums are level as long as you live and your policy builds cashvalue. The initial annual cost will be much higher than the same amount of term life insurance, butas you get older that gap closes. Limited payment whole life insurance: This policy lets you pay premiums for only a specific period,such as 20 years or until age 65, but insures you for your whole life. Thus, premium payments willbe higher than if payments were spread out through your lifetime. Single premium whole life insurance: This policy is paid up after one substantial initial payment. Universal life (UL) insurance: This policy lets you vary your premium payments and adjust yourdeath benefit as beneficiaries' needs change. You have to be aware of how much is in youraccount and whether you need to make payments in order to keep the policy in force. There arealso UL policies that can provide level premiums, as well as UL policies with a planned premiumoption and guaranteed death benefit for life. These policies may offer lower premiums in exchangefor a slow accumulation of cash value, if any. Variable universal life (VUL) insurance: Here your cash value and death benefit are tied to aparticular investment account. Your cash value and death benefit increase if the underlying

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