As opposed to level term, increasing term life insurance, or decreasing term life insurance options, whole life insurance does not run for a set term. Instead, a whole life insurance policy will pay out a lump sum to your dependents upon your death for as long as your premiums are maintained. As life insurance policies such as level, increasing or decreasing term are a gamble on your behalf, the premiums are relatively low; the likelihood of your dying during the term is reflected by these low premiums. However, as you are certain to die eventually, whole life insurance policies carry much higher premiums.
Whole life insurance policies double as savings vehicles for your dependents. Unlike other life insurance products that are monetarily worthless at the end of the term, a whole life insurance policy increases in value over time, and can be viewed as a long-term investment. As whole life insurance policies run for the remainder of your life, chances are that as long as your lifestyle is relatively healthy, you will be well beyond retirement age before your death. As a result, your mortgage is more than likely to have been fully repaid, leaving your payment largely able to be bestowed on your spouse, children and grandchildren as gifts. However, making a gift to your family in your Will and estate will make the payout subject to Inheritance Tax. Inheritance Tax can absorb up to 40% of the payout, so in order to avoid this, it is possible to place your whole life insurance policy ‘in-trust’, so that payouts are made directly to your dependents rather than making up part of your estate.
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