We went to Answers.com to define whole life insurance.
A type of life insurance contract that provides for insurance coverage of the contract holder for his/her entire life. Upon the inevitable death of the contract holder, the insurance payout is made to the contract's beneficiaries. These policies also include an investment component, which accumulates a cash value that the policyholder can withdraw or borrow against.
Let's look at some components that make up a whole life insurance policy.
The policy is structured to last you your "entire life" instead of a "term". As long as you keep paying the premiums, the policy will be in force regardless of age and health.
Just like term life insurance, beneficiaries exist in a permanent life insurance policy. But, what many fail to realize is that there are living benefits within this contract. You yourself can benefit if you utilize the advantages of whole life insurance. Of course, being aware of them is the first step.
The premiums consists of a cash value as well as a death benefit. As stated above, the cash value is available to the policy holder to withdraw or borrow against.
* I HATE WHOLE LIFE INSURANCE
* THE ONLY TYPE I LIKE FOR THE PURPOSES FOR INSURING YOUR LIFE IS TERM INSURANCE!
If you asked Suze why she hates whole life insurance, I'm sure she'll reply in the same tone:
Is there value to the higher premiums? To help define whole life insurance rates, let's look at why the premiums are priced high.
There is a 100% chance that you will die. So, as long as you continue paying the premiums, the death benefit will be available upon death.
Regardless of your age and health, the premiums will never rise. For example, if you sign the contract when you're 20 years old, and healthy and at 50 years old your health deteriorates, your premiums won't change. You are still locked into the rate from 30 years prior. There is no term or renewal period.
It is affordable life insurance. You have the ability to recapture the premiums paid because of the investment component built into the policy. There is a guaranteed interest rate and the cash value within the policy can never lose its value (not the case with stocks and 401k retirement plans).
As time progresses, the premiums get cheaper because of inflation (the time value of money is working for you). Inflation is one of the eroding factors of money. So, in the later years, you'll be paying these premiums with inflated dollars.
Many despise cash value life insurance policies because of it's high premiums. But we're trying to be different. Instead of looking at the costs, focus on the returns. That's what the rich do.
Maybe Suze is right. Maybe for the purposes of insuring your life, term life insurance is the ticket. However, what if you could insure your life, build your savings, and invest all with the same dollar? That is called the velocity of money.
Just like the shoes above, it's more expensive in the beginning. But, consider the value that it provides.
The question is, can you use these policies to help you run on your journey towards financial freedom?
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