There are two main types of life insurance- term life and whole life. Term life insurance is temporary insurance that will last for a certain amount of time, or term. Whole life is permanent insurance that builds cash value.

How does whole life insurance build cash value? Whole life insurance will last for your entire lifetime, as long as you continue to pay your premiums. The fixed premiums are higher than a term life policy and that’s because a portion of your premiums are invested by the carrier. You can look at it as a built in savings element or, as some people refer to it, “forced savings.”As you pay your premiums, your policy will build cash value. This cash value is tax deferred until you decide to withdraw or borrow against it. If you die, your beneficiaries receive the death benefit, which is the face amount of the policy.

If you withdraw your cash value without surrendering the policy, then you are essentially borrowing against your life insurance policy. The carrier will charge you a specified interest rate until the money is returned to the policy. Any money that is owed at the time of the insured’s death is subtracted from the death benefit.

Whole life cash value insurance has advantages and disadvantages. One advantage is that the premiums are level for life. A whole life policy also has the ability to build cash value, tax-deferred. A disadvantage is that it costs much more than term life insurance. You should weigh the pros and cons of whole life insurance for your particular situation. Be sure to speak with an experienced agent to determine which type of life insurance is best for you. Get some free quotes for term life and whole life to compare the difference in cost.

Whole life is permanent life insurance that builds up cash value and it can also pay dividends. This means that you’ll have life insurance coverage for your entire life, as long as you continue to pay your premiums. Your policy will never be canceled so it is a good choice if you want life insurance coverage for the long-term (longer than a 30 year term policy, for example).

There are two main types of whole life insurance policies- non-participating and participating. The difference between the two is that participating whole life policies pay dividends. These dividends come from successful investments made by the life insurance carrier, as well as favorable mortality rates. You can choose to take your dividends in several ways.

Cash. Your dividends can paid be paid to you in the form of cash and you can use that cash in any way you choose. Life insurance carriers will typically mail these dividend payments to you in the form of a check.

Reduce your premiums. Your dividends can be used to pay a portion or all of your premium payments. For example, if you have a $200 dividend payment that is due to you and your premium payment is $1200 annually, you can choose to have your dividend be paid towards the premium due. So you’ll end up paying $1000 for the difference. In some cases, if the dividends are large enough, it can pay the premium entirely.

Pay off a policy loan. If you have borrowed from your whole life insurance policy, then you can choose to have the dividends be used as payment towards the loan balance or towards the interest due.

Once you decide on how you want your dividends to be paid, you’ll have to contact your life insurance carrier so they can update your policy with the correct mode of payment.

Get a free quote for dividend paying life insurance today to compare multiple rates from the nation’s top carriers.

I’ve had four people call me this week and tell me that they were shopping for term life because they can no longer afford whole life insurance in this down economy. One gentlemen borrowed from his cash value. His policy is about to lapse because he can’t afford the interest payments on the loan. Another gentlemen was laid off from his job as a marketing manager. One woman in her 40’s said that she just doesn’t want to make the payments anymore now that she knows how much more she can get  if she had term life. And one last young man simply said he didn’t know what he was doing when he bought whole life and now that he has 2 children, his expenses have gone up, and the cost is no longer affordable.

Four different people who have all been affected by this down economy. They all want to make sure that their families are financially protected, but they can no longer afford their expensive whole life insurance premiums. Let’s take a closer look at what options are available if you can no longer maintain your whole life premiums.

Cash out your policy. Take out whatever cash value is available and stop paying your premiums. You will owe taxes on the cash value withdrawal if it is more than the premiums that you paid into the policy. You can use that cash value to purchase a single premium whole life or term life insurance policy or you can get a more affordable term life policy and make the payments annually or monthly.

Reduce your death benefit. Some carriers will allow you to reduce your death benefit based on the cash value in the policy. You can stop paying premiums and you will still have life insurance coverage, though a smaller policy.

Let your cash value pay your premiums. If you think you’ll be out of a job temporarily then you might be able to allow the cash value in your policy pay your premiums. This all depends on if you have the necessary rider on your policy. The premiums paid from the cash value would be considered a loan and will have to be paid back in the future.

These are just a few of the options that you have. Before you decide to cash out or let your life insurance policy lapse, you should consider your current financial situation. Is the inability to make your premiums payments temporary? Will you be able to make the premium payments again once you are back on your feet? You also have to consider your life insurance needs. If you don’t have enough coverage with a whole life insurance policy, then you should probably consider term life instead, because you’ll be able to get more insurance coverage for less money.

One last thing to consider is your health. If you have some health issues such as cancer or heart disease then it might be difficult to qualify for an affordable term life policy. Be sure to speak with an experienced agent about your situation before you let your current policy go. You can also get free quotes to compare other types of policies.