Nevada Whole Life Insurance
Nevada whole life insurance has come a long way since its initial inception. Originally the only type of life insurance written was term insurance. The policies also were written for only 20 or 30 years. Because term life insurance only pays a claim upon death within the stated term, people holding term insurance policies became upset. They figured out that they could be paying premiums for 20 or 30 years and then wind up with nothing to show for it. In other words, once the term expired so did the value of the policy. People slowed their purchase of term life insurance so insurance companies put their actuaries to work creating an insurance policy with level premium payments. These premiums were higher than traditional term insurance contracts so the companies added several features to the Nevada whole life insurance policies commonly called non-forfeiture values (NFV). One of the NFVs offered was a "cash value" (CV). The actuaries designed the CV to be a cash reserve that would build up against the known claim - the death benefit. These policies additionally credit interest to the cash value account and have a maturity date. The date varies by company but it is usually age 95 or 100. At that point in time, the cash value would equal the death benefit. Both the policy owner and the insurance company benefited from this construction. By guaranteeing the death benefit, the policy owner was assured that insurance coverage would be in force when the insured died. The insurance company benefited because with every premium payment made, a large percentage (up to 30%) is overcharge. This overcharge is pure profit for the insurance company. This means that the cost of insurance which increases as the client’s age increases, the premiums remain the same for the policy owner. The policy owner likes level premiums for budget and cost reasons. Nevada whole life insurance comes in two types: 1) Non-Participating All values related to the policy (death benefits, cash surrender values, premiums) are usually determined at policy issue, for the life of the contract, and usually cannot be altered after issue. This means that the insurance company assumes all risk of future performance versus the actuaries' estimates. If future claims are underestimated, the insurance company makes up the difference. On the other hand, if the actuaries' estimates on future death claims are high, the insurance company will retain the difference. 2) Participating In a participating policy, the insurance company shares the excess profits (variously called dividends or refunds in the USA) with the policyholder. Typically these refunds are not taxable because they are considered an overcharge of premium. The greater the overcharge by the company, the greater the refund/dividend. For a mutual life insurance company, participation also implies a degree of ownership of the company. Payment Options for Nevada whole life insurance:
1. Limited Pay
Similar to a participating policy, but instead of paying annual premiums for life, they are only due for a certain number of years, such as 20. The policy may also be set up to be fully paid up at a certain age, such as 65 or 80. The policy itself continues for the life of the insured. These policies would typically cost more up front, since the insurance company needs to build up sufficient cash value within the policy during the payment years to fund the policy for the remainder of the insured's life. 2. Single Premium
A form of limited pay, where the pay period is a single large payment up front. These policies typically have fees during early policy years should the policyholder cash it in. Something to keep in mind about payment types is while the above two are the most common, some companies offer a different set of payment options. Always ask about the payment options. You can save a lot of money by asking a few questions about the Nevada whole life insurance policy you're considering.
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