Indeterminate whole life insurance

Posted on by Kate

Whole life insurance is one of the many types of life insurance policies that continuously remain in force for the whole lifetime of the insured, of which usually requires premiums to be paid annually into the policy. There are also many types of such insurance policies, one of it being the Indeterminate Premium.

Before we get to the indeterminate part of the policy, let me give a brief definition of a premium. For those who have not signed up for any insurance policy before, a premium is the periodic payment that has to be made on the policy. It can either be monthly or yearly, as policies differ from one company to the next. Overall, the premium would need to provide coverage for the expected cost of losses, when the unfortunate happens.

For the indeterminate whole life insurance, all values related to the policy such as death benefits, or cash surrender values are predetermined beforehand between the insured and the insurer, for the life of the contract, and it cannot be altered afterwards. In many ways, this reflects the non-participating whole life insurance, but what makes indeterminate different is that the premium may vary year to year, with the condition that the premium in any given year cannot exceed the maximum premium guaranteed in the policy document.

In such a policy, there will be no change in cash value, face value and absolutely no dividends (in other words, the insured has no profit to gain). So, why would people choose such a policy?

The answer is quite simple, that being the initial premiums for indeterminate premium policies are much lower than most permanent insurance plans. This gives a chance for more people to acquire insurance coverage at a lower introductory cost. It’s perfect for young, working people who expect to get higher income or lower living costs in the years to come. When that time comes, they may pay higher premiums.

However, they need to make sure such good fortune happens, or they risk violating the policy, being unable to pay the rising premiums. Thus, it is best for one to prepare enough money to pay for the maximum premium amount. If the premium imposed that year is lower than the maximum, the surplus can be saved up to pay the next premium. This makes the policy much more manageable.

All in all, the indeterminate premium is a great type of insurance policy. Just remember to work harder and make more money continuously.