What Is Ordinary Whole Life Insurance?

What Is Ordinary Whole Life Insurance?

Also known as straight life, ordinary whole life insurance is the most common type of insurance policy that’s written today. The policy terms are simple: you pay a monthly premium every month until you turn 100 years old or you die, whichever comes first. Some modern policies are written to age 120, given the advances in medicine that extend life expectancy.

Features of Ordinary Whole Life Insurance

Ordinary whole life insurance is a type of cash value insurance, meaning that you can choose to surrender the policy and receive the cash that’s grown over the years. This includes both the principal you’ve paid into the policy and the interest and dividends that have accrued on that principal. At that point, you’re stating that you want the cash now instead of keeping the policy active until your death. The interest will be taxed as if it was ordinary income.

The entire death benefit is usually free of taxes, with the one major exception of estate taxes. However, estate planners often use trusts to shield the money from these taxes. If you take out a loan against your policy, leaving it in force as opposed to surrendering the policy, Loans are not taxed and may be repaid over 10-15 years by the dividends paid into the policy by the insurance company.

Ordinary whole life insurance is both insurance and investment. Your financial advisor will be able to help you determine whether it is the right financial vehicle for you.

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