What is the “Vanishing Premium” With Whole Life Insurance?

What is the “Vanishing Premium” With Whole Life Insurance?

This option is similar to the premium reduction option except that the dividends are applied as additional premiums while the policyowner continues to pay the full annual premium. Under this option, the policyowner is essentially converting what is an ordinary level premium whole life policy into a form of increasing premium limited pay policy. After a number of years, the policy will be entirely paid-up and the policyowner will require no further premiums to keep…

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The 3 Primary Alternatives to Whole Life Insurance

The 3 Primary Alternatives to Whole Life Insurance

There is no substitute for life insurance that provides an immediate estate upon a person’s death. All types of life insurance policies can provide tax-free cash upon death. The unique feature of level premium life insurance is its “affordability.” It provides lifetime coverage at the lowest level annual cost relative to other types of whole life policies. As a byproduct of level premium financing, the policy creates a tax-free or tax-deferred cash buildup. Persons desiring…

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How to Evaluate Whole Life Insurance Policies

How to Evaluate Whole Life Insurance Policies

Selecting the best cash value life insurance policy is a difficult task involving a number of complicated concepts and analyses. However, because the level of dividend payments on participating ordinary level premium life insurance is a critical element of the overall cost of the protection, one primary area of focus should be how the company determines the dividends it pays. Evaluating the Dividends Paid on Par Policies Compare the current rate credited to policy cash…

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Tax Implications of Ordinary Whole Life Insurance

Tax Implications of Ordinary Whole Life Insurance

Death benefits are usually free of any federal income tax. In general, death benefits paid under these policies are subject to the same income, estate, gift, and generation-skipping transfer taxation rules as all other types of life insurance policies. Taxation of Living Proceeds Section 72 of the Internal Revenue Code governs the taxation of living proceeds from life insurance policies. Living proceeds are generally any amounts received during the insured’s lifetime. For tax purposes, payments…

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What to Know About Ordinary Level Whole Life Premiums

What to Know About Ordinary Level Whole Life Premiums

Life insurance companies are free to set premiums according to their own marketing strategies. Almost all states have statutes prohibiting any form of rebating (sharing the commission with the purchaser) by the agent. The premium includes a “loading” to cover such things as commissions to agents, premium taxes payable to the state government, operating expenses of the insurance company such as rent, mortgage payments and salaries, and other company expenses. A few companies offer “no-load”…

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Important Policy Features of Ordinary Level Premium Whole Life Insurance

Important Policy Features of Ordinary Level Premium Whole Life Insurance

Par and Nonpar Policies The premiums, the death benefit, and the minimum cash surrender value schedule are initially fixed in ordinary level premium whole life policies. However, if the policy is a dividend paying, or “participating” (par) policy, the premiums may effectively decrease and the death benefit and the scheduled cash surrender values may increase. Only if the policy is a “guaranteed-cost, nonparticipating” (nonpar) policy that does not pay dividends will each of these features…

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Consider Using Ordinary Level Premium Whole Life Insurance as a Savings Vehicle

Consider Using Ordinary Level Premium Whole Life Insurance as a Savings Vehicle

One can view ordinary level premium whole life mathematically (but not legally) as a combination of decreasing term insurance and increasing “savings fund.” Although the level premium payment method permits the policyowner to pay the lowest up-front outlay necessary to acquire lifetime coverage, the premiums are still greater than the mortality costs in the early years. Because premiums remain level while mortality costs increase at later ages, the insurer must set premiums in the early…

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7 Disadvantages of Ordinary Level Premium Whole Life Insurance

7 Disadvantages of Ordinary Level Premium Whole Life Insurance

Understanding the disadvantages of level premium whole life helps consumers make the most educated decision. Here are the 7 major disadvantages that should be considered. Lifetime distributions of cash values are subject to income tax to the extent attributable to gain in the policy. The premium may be unaffordable for persons of limited financial resources. In the early years, the amount of protection is lower relative to the premium spent than with term insurance. However,…

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11 Advantages of Ordinary Level Premium Whole Life Insurance

11 Advantages of Ordinary Level Premium Whole Life Insurance

Understanding the advantages of level premium whole life helps consumers make the most educated decision. Here are the 11 major advantages that should be considered when considering level premium whole life insurance: A fixed and known annual premium. Although, it should be noted that net premiums (fixed premiums minus dividends) for par policies generally will decline over the years. Guaranteed ceiling on mortality and expense charges and guaranteed floor on interest credited to cash values….

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16 Reasons to Consider Ordinary Level Premium Whole Life Insurance

16 Reasons to Consider Ordinary Level Premium Whole Life Insurance

There are nearly 2,000 life insurance companies actively marketing life insurance coverage in the United States. Most of these companies offer level premium whole life policies as well as other permanent forms of life insurance. In addition to commercial insurance companies, some fraternal organizations, savings banks, professional associations, membership organizations, and stock brokerage houses offer level premium whole life policies. Prospective insureds can purchase policies through many agents representing licensed insurance companies. In general, some…

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