Whole life insurance is a form of life insurance, which is the first concept that must be clear. Read our post about life insurance where we explain what it consists of.
What is whole life insurance?
In whole life insurance, the insurance company is oblige to pay the insured a certain amount of money when his death occurs, regardless of the time of death. The amount to be paid can be pay through an income for a certain time or in a single amount when death occurs.
This whole life insurance will guarantee the collection of the insured amount for life.
It must be borne in mind that it has a high risk, but since the payment of the benefit is guarantee, it is also a way of saving for the insured who signs the policy.
Purpose of whole life insurance
The purpose of whole life insurance is to compensate family members or beneficiaries of the insurance for the loss of income that was obtain before the death of the insured. This capital receive can also be use by the heirs to meet the expenses involved in the transfer of assets and to pay possible debts that the insured may have.
Types of premiums in whole life insurance
The insured, from the moment he signs the whole life insurance policy, has to disburse a certain amount of money to the insurance company periodically and in the terms previously agreed.
This premium to be pay by the insure can be:
- Lifetime premium: Premiums are pay periodically until the death of the policyholder.
- Temporary premium: The payment of the premiums is make during a certain period of time, normally 25 or 30 years, but the whole life insurance coverage also extends until the death of the insured.
What types of risk insurance are there?
- Temporary insurance: the insure sum is pay to the beneficiaries upon the death of the insured, as long as this occurs within the period stipulated as the duration of the insurance. Other characteristics of temporary insurance to be note are: (i) insurers, as a general rule, limit the age of the insured to a maximum of 70 years and (ii) it lacks guaranteed values (reduction, redemption and advance payment).
- Whole life insurance: guarantees the payment of a capital immediately after the death of the insured, regardless of when it occurs. This type of insurance, unlike temporary insurance, does grant guaranteed values.
- Amortization insurance: this type of insurance is usually sign to guarantee the payment of a debt, so that the insurer, in exchange for the premium received, undertakes to pay, in the event of death or absolute and permanent disability of the insured, the sum total debt pending amortization. This insurance lacks guaranteed values. In these insurances, the beneficiary is usually the creditor financial institution of the debt, so that, in the event of a contingency, the insurance company settles the debt directly with the financial institution.
- Capital insurance and survival income: through it, the insurer undertakes, in exchange for the collection of the premium, to compensate the beneficiary, in the agreed amount, for the death of the insured, as long as it occurs before to that of the beneficiary. Otherwise, that is, if the beneficiary die before the insure, the insurance would be cancel and the insurance company would keep the premiums already paid. This insurance takes into account the probabilities of death of the <<two heads>>, so that in the calculation of the premium the circumstance that the beneficiary dies before the insure is already take into account. This insurance lacks guaranteed values.