Basics of Whole Life Insurance Policy.

What is whole life insurance?

Whole life insurance or whole of life assurance sometimes called straight life or ordinary life is the type of policy that the insured obtained for the profitability of his beneficiaries.

In the event of death or loss of life, one uses it to obtain security for his loved ones.

Generally, in a life insurance policy, the contract is believed to remain valid for the period of time the life is been insured and for the fact that the agreed premium is intact and is payable as at when due.

However, a whole life assurance policy is the type of life policy obtained for the financial support for the family of a man when he dies.  An agreed sum of money is paid to the representative {nominee} of the policy in the case or event of the insured death.

The premium is in principle to be paid by the man throughout his life.

In practice, however, the premium payment ceases at the time the man is expected to cease active economic life, say at the age of 60 or 70.

Most times, a lump-sum premium payment might be prepared called a definite or single premium, and paid at the beginning of the insurance agreement.

For the young beginners in whole life assurance, the whole life assurance premium will be relatively small, but where a single premium is required this could be a bucky financial burden that only a relatively wealthy young man can pay.

The insured party normally pays premiums until death, except for limited pay policies which may be paid up in 10 years, 20 years, or at age 60 to 65.

Term Assurance:

Term assurance is the most important aspect of life insurance.

It is paid only if death occurs during the term of the policy, and is usually from one to 30 years or 35yeas.

however, a term assurance {like whole life assurance} is a contract in which the sum assured is paid to the beneficiary only in the condition of the demis of the man whose life the policy is based.

It is very important to understand that most term policies have no other provisional benefits.

Types of term assurance

There is basically three most valued term assurance and they are as follows.

a. Reducing or decreasing term assurance: The decreasing term means that the death benefit {premium} drops as the outstanding loan, or as security for which the policy was taken, decreases over the period of the policy contract.

Also, at the end of the policy period, the premium payable should be equal to the current outstanding amount of the loan installment.

This is only possible if there is no interest rate fluctuation.

b. Convertable term assurance: This means the type of term assurance in which the contractual agreements between the parties to contract are made in such a way that the policyholder can easily convert the term assurance into whole life assurance or endowment assurance as the case may be.

These changes could be made later without involving the policyholder in any medical examination which is usually the reason or condition for the two types of policy.

c. Suitable {constant or level term assurance}: This means that the death benefit {premium} remains changeless and the same all through the duration or period of the contract.

In this case, the premium, paid is a given sum of money and it is irrevocable throughout the period of the contract.

This is majorly practiced in the case of family support.

3 major differences between whole life and term assurance

The three major differences between whole life assurance and term assurance are as follows.

i. Whole life or permanent insurance pays a death benefit whenever one dies. The number of years one lived is not in consideration most time.

There exist three types of whole life insurance {a} traditional whole life {b} universal life, and {c} variable universal life, and there are some certain differences between each type.

ii. Term assurance is a deal entered into not actually for the personal benefit of the assured family, but rather as collateral for a loan received by the man, this implies that it is more of the financial deal.

while whole life assurance on the other hand is usually for family protection and coverage.

iii. There is no upper limit for term assurance. In practice, however, the period of contract is relatively short, say, up to 5 years or more. for a longer period, the policyholders would rather convert it into another form of insurance which could either be whole life or endowment assurance.

Death Benefit:

The death benefit of a whole life policy is usually the contractually agreed amount.

However, A death benefit is a sum of money given or paid out to the beneficiary of whole life assurance, in the event of the insured death at the time the policy or contract is still valid {effect}.

The death benefit is the major reason for buying life insurance coverage. It is the calculation of what one’s premium covers within the duration of the contract.