Contractual Guarantees in whole life insurance

With whole life insurance there are generally contractual guarantees in the life insurance policy.

  • The death benefit is guaranteed.
  • The base premium is guaranteed not to increase.
  • The cash-value of the policy may be guaranteed to increase over time.

Generally speaking, a whole life policy is a permanent obligation of the carrier, where the cost of insurance, as a calculation internal to a particular insured’s policy, is fixed at the age and rating at the time of issue. Premiums on a traditional whole life policy are due on the anniversary mode date if the insured is alive on that date. Premiums may sometimes be offset, or completely covered by accrued dividends, loans and/or surrenders of the policy’s cash-value, and/or dividends paid into the policy on the policy’s anniversary (if the policy is “participating” and the company has declared a dividend for that policy year).

Limited pay whole life insurance policies (also known as “paid up” policies)

Another variation is a limited pay whole life policy (sometimes called a paid-up policy), where the policy and the projections of the death benefit and cash-values are based on the policy receiving premiums for a certain length of time, and ending at a date that could be contractually defined, after which no more premiums are due, but the death benefit and cash-value remain a permanent obligation of the insurance company.

Additional features and benefits, can be named similarly among carriers, but the actual definitions and terms, are generally carrier specific. A knowledgeable, experienced agent should be able to help choose the most appropriate carrier and product for a client’s given circumstance. Whole life insurance, and the limited pay variation, are typically the only products that qualify to receive a dividend if the carrier declares one, these policies are called “participating”. Generally speaking, mutual companies issue “participating” policies, but stock companies, because they have a profit obligation to shareholders, may issue participating (where the dividend is divided between policyholders and shareholders), or non-participating (“non-par”) policies.

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