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Whole Life Insurance

An insurance policy that remains valid through out the life time of an individual is called a "Whole Life Insurance". Annual premiums are to be paid (or as per the company’s policy) through out the term and on his/her death or at the end of the term, the nominee or nominees would receive the final amount. There is quite a variety of whole life insurance types, six in total, but they vary widely depending upon the company and jurisdiction concerned. The six main types are discussed below, read them well to get an idea of what whole life insurance in general has to offer.

Participating: According to the terms of a participating insurance contract, the company gives out dividends to its policy holders, which is actually the excess profit that the company makes. Such an overcharge does not fall under the category of taxable money.

Non-Participating: In this type of insurance contracts, the company concerned decides on all the issues like premium rates and death benefits based on their own policies. Such a non-participating insurance contract can not be altered under normal circumstances and therefore the company becomes responsible for managing both the company’s underestimation and the actuary’s overestimation.

Economic: These policies are used generally to get better death benefits, although, in some of the years within the policy the dividends may actually be less than estimated, therefore causing the death benefits to go down temporarily. The extra income which is shared by the company is usually used to buy more term based insurance policies.

Indeterminate premium: This policy may cause the premium to increase and decrease every month, while remaining within the limit of the maximum premium agreed upon in the insurance contract. All other aspects of this type is similar to that of the non-participating.

Limited Pay: This type of a policy ensures that you do not have to pay premiums for a lifetime, rather just a fixed period of time. Such a policy usually has a higher premium at the beginning in order to cope for the latter years. It can also be agreed upon in such a way that the person concerned can pay up when he reaches a certain age. This type is quite similar to the participating type in the other aspects.

Single premium: A single premium policy states that one must pay the whole premium amount right at the beginning of the term and thereafter he would only have to pay certain fees during the early years.

A new type has also evolved other than the six mentioned above, it is called Interest Sensitive. The interest on the policy’s value is subject to changes depending on the economic conditions of the time and therefore it does not guarantee uniform dividends through out the policy term. The premium amount may also change from month to month, but it shall always remain within the maximum premium amount agreed upon in the policy.

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