How to Compare Whole Life & Variable Life Insurance Policies
Making a decision to purchase permanent insurance like whole life insurance and variable life insurance is both rewarding and a challenge. Unlike term insurance that you can change every year as long as you're healthy, with no financial ramifications, changing permanent insurance is costly. Selecting not only the right company, but also the right type of product for your situation is important. There are major differences between these variable life and whole life policies, and there are different types of each policy.
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Things You'll Need
- Information on the policies, including prospectus
- Hypothetical proposals
Instructions
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Compare policy costs. Some insurance policies cost more for the same amount of insurance but guarantee less cash value. Others cost less up-front, but after a few years the premium increases.
Variable policies are not all the same. Universal variable policies, where the investments pay the term premium inside the policy, don't guarantee that you'll never pay more in premium. You can adjust the premium on the universal and have the option to increase the premium and even skip payments later.
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Decide whether you want to participate in the investment results. Not everyone wants to monitor or direct his own money. Some people want a return with no hassle. If you like the idea of potentially increasing your return because of investment savvy, choose a variable policy.
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Check the number of different investment options in the variable policy. Make certain that it has a fixed account, similar to a savings account. Most of the variable life insurance policies offer a large number of investments from which to choose. Look for policies that have investment funds from several different fund families.
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Some whole life policies allow you to pay the policy in full within a specified number of years. While you can pay extra amounts on universal variable life products, there's no guarantee the investments will produce enough to allow you this option.
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See if the whole life policy offers dividends. The policy cost is often higher, but if the company makes a profit on the policies, you get tax-free money from dividends in later years. An alternative name for dividend bearing policies is a "participating" policy.
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Look at the expenses the insurance company takes from the money you invest every month on universal variable policies. These expenses include monthly fees, investment expenses and the cost of the life insurance. It dictates how much money actually goes into the savings. Other policies also have expenses but are more difficult to identify and you must depend on comparing the growth of the cash value. Use a zero percentage rate on proposals for traditional variable life policies to do this. These expenses translate to lower investment amounts and less growth of the cash value.
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