Types of Whole Life Insurance
Depending on the the company from which you purchase your whole life insurance policy, you will likely have a lot of options. For example, the state of New York has cited six specific types of Whole Life Insurance and one additional plan has arisen recently. Below we'll go over the differences between these seven Whole Life Insurance plans so you can make an informed decision while choosing the right plan for you and your family.
Participating (aka "Par" or "with-profits" policy). This type of plan shares the profits of the company with you, the policy-holder. So, if your life insurance provider experiences a high year of profits, then your "dividend," "refund," or "bonus," will be credited to you on a set schedule, which usually coincides with the quarterly or annual financial reports of your insurance provider.
Non-participating. A non-participating life insurance policy sets all details of the policy at the time of issue for the indefinite life of the policy. Therefore, certain aspects of the policy, including death benefits, cash surrender, premiums, or values will not change.
Indeterminate Premium. An indeterminate premium life policy is similar to a non-participating policy (above), except its premium may vary from year to year. Although this may seem less preferable than a fixed premium, the premium may even go down if your health or the profitability of your insurance provider change; Indeterminate Premium policies often contain a maximum premium clause, as well, so your premium will never become out-of-line with your expectations.
Single Premium. These life insurance plans allow you to make all of your premium payments in one lump sum, up-front for the life of your contract. You will generally need to pay fees if you cash in your policy early in the phase of your contract.
Economic. An Economic Whole Life Insurance plan combines traditional life insurance coverage with a participating, or "dividend-paying" policy. Your life insurance will accrue dividends, and will be re-invested into your coverage so that your benefits increase over time. Note: Your insurance provider may not be able to pay a dividend or bonus every year, in which case your death benefits may even decrease.
Interest Sensitive. These plans are a very new arrival on the scene of life insurance, but they provide the unique benefit of combining the reliability of a life-long whole life policy and the flexibility of universal life coverage made possible through changes in dividends, which then affect premium rates.
Limited Pay. The limited pay life policy is a combination of indefinite coverage provided by a Whole Life Insurance plan with the fixed term of premium payments of a Term Life Insurance plan. You pay for a limited term, often at a higher premium than average, but after you're done paying your term, you still possess your life insurance coverage for as long as you live.