Friday, January 05, 2007

Variable Whole Life

Simply put, its a Whole Life policy where your cash value that is primarily invested in bonds and mortgages. Remember that Whole Life provides permanent lifelong insurance protection, a guaranteed minimum death benefit, and fixed premiums. Since your cash value is being invested, cash value are not guaranteed. You may lose or gain value on your cash value. Your cash value may increase or decrease in direct response to 1) premiums paid, 2) investment performance of the separate cash value that is selected by you, and 3) specified monthly deductions to fund the death benefit portion and provide other benefits.

While death benefit can increase or decrease with corresponding increases or decreases in the cash value, the death benefit can never fall below the guaranteed minimum, as long as scheduled premiums are paid and the policy remains in force.

The rules and procedures governing the withdrawals of cash value are somewhat different from those of traditional Whole Life. Since cash value is created as soon as the first premium is paid, policy loans are theoretically available immediately. After the first policy year, you can borrow up to a certain percentage of the cash value, which is usually between 75% to 90%. When you borrow the cash value, you will permanently affect both the cash value and any death benefit over the guaranteed minimum, whether or not you pay the loan back.

So things to remember about Variable Whole Life:
1) Cash value is not guaranteed.
2) Agents selling this product needs a life license and a securities license.
3) There is a guaranteed minimum death benefit.
4) Any cash value you borrow will affect the value of your cash value and the death benefit above the guaranteed minimum.
5) Agents must provide a prospectus.