What is Whole Life Insurance?
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UPDATED: Jul 16, 2021
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Whole Life is kind of permanent life insurance that does not expire after a certain time or term, but lasts for the rest of your life. One of the benefits to a whole life insurance policy is it provides the security that you will always have insurance for the same premium rate. On the other hand, the policy can be inflexible and the premium rates will be higher than short term life insurance plans, particularly if you are young and healthy.
TIP: There are benefits of whole life insurance that may appeal to you, but you should take the time to get multiple quotes and compare the benefits of a term life plan before purchasing either.
Benefits of Whole Life Insurance
There are a few benefits to whole life insurance that you should be aware of when you are shopping for life insurance:
- Cash Value: Whole life insurance policies accrue cash value. The cash value grows tax deferred the longer you keep the policies. The accrued cash value can be borrowed against in times of need, although you will need to repay with interest. If you ever surrender your policy, you usually will receive the cash value. If the person dies, the death benefit is usually the face amount of the policy plus the cash value.
- Dividends: Dividends are payouts from your life insurance policy that can occur as the value grows. Not all whole life policies pay dividends, but if your insurance company does than these dividends can be directed to purchase more insurance or to accumulate a greater cash value. Ask an agent when you get a whole life insurance quote, if the insurance company pays dividends and how you should direct those dividends.
- Fixed Premium Rates: Another benefit of this permanent life insurance is the fixed premiums. Whole life insurance policies usually come with fixed premiums. Therefore, if you take out a whole life policy at the age of 20 for $100,000 for $25 a month, the premium will still be the same at age 70, regardless of your health. This premium rate will be higher than term life premiums for people who are young and healthy.
- Pay Up Premiums: Another benefit of a whole life policy is the ability to pay up the premiums. Ask your agent when you are getting a whole life insurance quote if the insurance company gives a paid-up option. This option allows you to pay a little more monthly, however you will be finished paying for the policy early, say in year 20. At that point, the insurance policy will pay for itself with the accrued cash value and dividends paying the premium. You will still have same coverage for life but you will no longer have to pay monthly premiums.
CAUTION: Whole life insurance has its benefits, but is just one of the many types of life insurance policies that consumers have in their portfolio. Whole life might be appropriate in some situations, but a majority of buyers could get more coverage or greater death benefit for less money by choosing a term life insurance and investing the difference in their personal portfolio. Take the time to compare term life policies and whole life policies, and find the right one to fit your personal and financial goals.
If you have any questions, do not be afraid to contact a life insurance agent with questions. Have your agent conduct an insurance needs analysis review to determine what type of life insurance is best for your situation, your age and your family. Be clear about what you want out of your life insurance, and don’t buy a policy until you know it is right for you. To get a life insurance quote from a reputable agent in your area, click here for the Free Advice quote center.
Read more about finding the right type of life insurance by clicking here.