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Whole Life: Is it right for you?

One of the easiest understood forms of life insurance out there is guaranteed whole life. While cheap term insurance remains a popular choice for many younger families, once people reach their 40s and 50s they often begin thinking about insurance that won’t expire or increase in price, and so they think about whole life insurance.

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Even though it’s popular, many people still need a whole life insurance explanation. If you are considering buying life insurance, the following whole life insurance tips given in question and answer form will help you determine whether or not whole life is right for you.

Q. Should I buy life insurance as part of my funeral preparations or should I just pre-pay for a funeral?

A. For uninsurable individuals with pre-existing conditions, prepaying for a funeral or purchasing pre-needs insurance from your undertaker is a good solution to an uncomfortable dilemma. If you are insurable then whole life insurance will provide you with more flexibility in both cash values (which give you borrowing power) and in naming heirs. Prepaid funerals are not always a good investment, especially when you consider the fact that you can surrender whole life insurance policies and take your cash values but you can’t with a prepaid funeral.

Q. Why should I get insurance when I have enough assets to fund my final expenses?

A. If your assets are ample enough that your heirs won’t have to struggle to pay for final expenses, don’t rule our life insurance entirely because a death benefit can enable your heirs to pay other expenses such as estate taxes. Life insurance is paid out tax free and does not go through probate so it offers a direct cash infusion to your heirs while the rest of your estate goes through the courts.

Q. Term insurance is guaranteed renewable so what is the benefit of more expensive whole life policies?

A. It’s true that term is renewable but it does not renew at the premium you originally were offered. Instead, you are given a premium that is relative to your attained age. Furthermore, after you reach age 75, your premium will most likely increase every year. When you get whole life insurance premium rate comparisons from several companies, you can make sure that you are getting an affordable premium that stays for the life of the policy.

Q. How fast does the cash value in a whole life policy to accumulate?

A. Traditional whole life cash values equal the face value of the policy when the insured reaches age 100.

Q. How stringent is the medical underwriting for a whole life policy?

A. The rules vary between companies but if you choose a modest face value—less than 50,000, for instance—and don’t have any chronic health problems, you may qualify for an "easy issue" policy. These policies ask for your health conditions over the past three to five years only and might not require medical records. The advice of your broker can be very valuable when choosing a company with easy underwriting standards.

Q. What if I die unexpectedly right after taking out the policy? Will it still pay out?

A. Yes, as long as you did not purposely or accidentally leave information out on the application. Insurance companies have a two year "contestability" period during which they can explore your medical records after death and determine whether or not you left any information out that would have caused them to decline you. If there is no reason found that would have resulted in a decline, they will pay the face value to your beneficiary.

Q. What if I can't pay my premium?

A. If you cancel the policy you'll receive the cash value it has accumulated minus any surrender charges. You may also have the option of taking "reduced paid up" insurance which means you'll receive a paid-up policy of whatever face value your premium has purchased at that time. You will not have these options with a term policy.

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