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Whole Life Insurance – Explained

Life insurance stampedUnder the umbrella of permanent, or cash value, life insurance policies, whole life is arguably the most common among individuals. There are a number of aspects of whole life insurance that should be understood and compared to other types of permanent policies prior to purchasing, including death benefit, cash value accumulation, cost and flexibility of premiums as well as common use. Let’s start with the death benefit portion of whole life.

Death Benefit Coverage

As with other permanent policies, whole life insurance provides a death benefit to the insured that is both level and guaranteed. As long as premiums are paid according to the initial details laid out within the insurance contract, individuals are covered under a whole life policy until age 95 or 100. Other types of permanent policies allow for death benefits to grow or decrease over time, and can be much shorter than the guarantees provided by whole life insurance depending on what the insured selects. Whole life policy guarantees on death benefit proceeds are backed by the claims-paying ability (financial strength) of the insurance company offering the coverage.

Cash Value Accumulation

The greatest differentiation among permanent life insurance policies relates to the potential growth and flexibility of the cash value portion of the policy. Whole life siphons off a portion of premiums paid into the policy to a cash value account that is both guaranteed and predictable. Cash value accounts are managed by the insurance company offering coverage, and are held in what is called a general account. Because of the control the company has over the way a portion of premiums are invested, whole life policy holders are offered a fixed rate of return on cash value accumulation and funds are not allowed to be invested at the policyholder’s discretion. For those looking for a simple, straightforward life insurance policy where cash value is not tied to market performance, whole life may be a sound choice.

Flexibility of Premiums

When an insured purchases a whole life policy, the premium payments are set, level amounts that will not change. The insurance company will base the amount of premium owed on the age and overall health of the insured at the time the policy is taken out, and contractually cannot change the stated premium level or amount throughout the duration of the policy. As long as the stated premiums are paid, the death benefit and cash value amount are guaranteed. This proves to be beneficial for individuals who are on a fixed income or who want to easily and clearly budget out premium payments over the course of policy ownership.

Although premium amounts are fixed, individuals who are considering a whole life policy do have options related to how long they wish to pay premiums. Generally, most policyholders select to pay premiums over the lifetime of the policy to keep the outflow of cash for life insurance coverage manageable; however, policyholders also have the option of paying until a certain age or policy year in order to free up cash flow down the road. This strategy, known as a limited pay premium schedule, may work well for those who have a higher income now, or those who do not want to carry insurance premium payments into retirement years.

Common Uses of Whole Life Insurance

Whole life insurance provides individuals the straightforward coverage they need throughout a lifetime with clear expectations for premium payments, predictable cash value growth as well as guarantees on death benefit coverage. This type of policy works well for long range insurance needs, and although it may be more expensive than term insurance in the early years of the policy, can provide a cost-effective way to purchase permanent coverage as premiums are set and level for the duration of the policy.

For individuals looking for more flexible premium payments or diversification in cash value investment options, whole life insurance may not be the best fit. The insurance company controls how individuals’ premium payments are invested within the general account, and determines what rate of return will be paid to the insured through the cash value account. Other permanent insurance policy options, including universal and variable life, provide a greater level of flexibility within a policy but also have various aspects that differ greatly from whole life. In order to make the best decision for you and your family, it is important to compare each type of policy and understand the intricacies of each.

Up Next… Universal Life Insurance – Explained

Posted on March 2, 2015 by Melissa

Is Term Life Insurance Right for Me?

Term life insurance policy and compassAlthough most people understand the concept and necessity of insurance coverage, selecting the correct category and type can quickly get overwhelming. There are a number of factors that should be taken into consideration when selecting your life insurance coverage, including cost and benefits available. It is also necessary to understand how each of these is affected by the category and type of coverage you select.

Posted on February 26, 2015 by Melissa

Island FCU offering 3.25% Home Equity Loan (NY)

Island Federal Credit Union logoIn light of the recent interest rate movement, many homeowners are taking advantage of the lower cost of borrowing against the equity in their homes. Consolidating high interest rate credit card debt, funding a child’s education, or financing a major renovation can all be reasons to obtain a home equity loan, and there are plenty of financial institutions providing their customers attractive offers in today’s market. One of these promotional home equity loans comes from Island Federal Credit Union.

Posted on February 24, 2015 by Melissa

Types of Life Insurance Coverage

Life Insurance TermsThroughout the history of life insurance, only two main categories of coverage exist: term insurance and permanent insurance. Under the umbrella of permanent insurance, however, there are various types of coverage from which an individual can choose, including whole life, universal life, variable life, and burial (or final expense) insurance. To fully understand which category and subsequent type of policy is the most suitable for you, it is necessary to understand how each differs from the other, as well as the benefits and caveats related to the various types.

Posted on February 19, 2015 by Melissa

Life Insurance Basics: What You Need to Know

Magnifying Life InsuranceWhen it comes to comprehensive financial planning, protection management through insurance is usually not high on the priority list for individuals or families; however, transferring risk through the purchase of insurance is one of the easiest steps one can take to ensure the rest of a financial plan remains intact should a family member pass away unexpectedly. In order to make the best decision for you and your family as it relates to life insurance coverage, it is important to understand how life insurance works, how much coverage you may need, and what types of coverage are available. Let’s start with what life insurance is and how it works to protect you and your family.

Posted on February 16, 2015 by Melissa

Arvest Bank offering 2.49% HELOC

Arvest Bank logoFor life’s major purchases, a home equity line of credit can be a smart, affordable way to finance expenses that are both planned and unexpected. Instead of taking a high interest personal loan or adding to credit card balances, tapping into your home’s equity can be much less expensive and much more flexible than other credit options. It is important to shop around for the best interest rates when it comes time to take out a home equity line of credit, however, starting with your local bank.

Posted on February 12, 2015 by Melissa

Mission FCU offering 1.49% New & Used Auto Loans

Mission Federal Credit Union logoIf you are in the market for a new vehicle, whether it is brand new from the dealership or simply an upgraded used vehicle, finding financing is one of the most important factors in the purchase decision. Although dealerships can offer attractive terms for some borrowers, it is beneficial to most buyers to shop out rates prior to committing to a vehicle purchase. For individuals who live in the San Diego region, Mission Federal Credit Union has an impressive promotional offer for a new or used car purchase.

Posted on February 9, 2015 by Melissa

Security Service FCU offering 4% Boat and RV Loans

Security Service Federal Credit Union logoAs the weather starts to inch toward spring, the thought of purchasing a new recreational vehicle to help take advantage of the warmer, sunnier days crosses the minds of many. Buying a boat or RV, whether new or used, generally takes some level of financing, however, and finding the best bargain in terms of interest rate and repayment time-frame can be a challenge. However, Security Service Federal Credit Union has a promotional offer for those in the boat or RV market that may make financing much easier to obtain and afford.

Posted on February 4, 2015 by Melissa

Desert Schools FCU Offering $0 Home Appraisal Fee

Desert Schools Federal Credit Union logoWith current interest rates at an all-time low and home inventory on the rise, purchasing a home is a serious consideration for a number of individuals. Whether you are a first time homebuyer or in the market for your next home, a number of cost aspects must be considered prior to deciding on which house to purchase. Some financial institutions are offering some assistance as it relates to home buying expenses, including Arizona-based Desert Schools Federal Credit Union.

Posted on January 29, 2015 by Melissa

SFPCU offering $599 Flat-fee Home Purchase and Refinance Mortgage Loans

San Francisco Police Credit Union logoFor a number of individuals and families, the current interest rate environment is presenting an opportunity to obtain attractive financing on a new home purchase or refinance of an existing mortgage loan. Because interest rates are low, prospective and potential homeowners are making up a large portion of the real estate market; however, some are caught off guard by high fees associated with closing costs on a purchase or a refinance. Some financial institutions are combating these financial objections to buying a home by offering drastically reduced closing costs to encourage individuals to buy. One of those financial institutions is San Francisco Police Credit Union, or SFPCU.

Posted on January 26, 2015 by Melissa

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