Whole life insurance is the most established type of permanent policy on the market, and its stability and "ease of use" keep it a popular option. Continue reading to find out how this type of policy works and whether it fits your needs as a policyholder.
Explains how simple whole life insurance works.
Describes a few pros and cons of this type of life coverage
Introduces common variations of whole life insurance policies.
Premiums can vary by as much as 50% for the same coverage and options, so it pays to get quotes from as many reputable insurers as possible.
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A permanent life insurance policy is any plan that is guaranteed to pay out at some point, rather than expire. Whole life insurance is the most basic and consistent permanent life insurance policy you can buy.
Under a whole life policy, the premium and death benefit you are quoted at your policy's start remain the same throughout the policy's life. But because your insurer will be investing your premiums, the policy may also may accumulate a cash reserve (the "cash value"). These funds can be put to use as premiums, reinvested, or saved - it's your choice.
Whole life insurance can be considerably more expensive than its limited cousin, term life insurance, but the death benefit is guaranteed as long as premiums are met.
First the disadvantages. The big problem with this type of policy is your lack of involvement in investing the cash value savings. Although the money can still be made available to you via loans, the investment portfolio itself is entirely decided upon by your insurance company.
And, as a rule, you can count on these investments to be very conservative. Which, in turn, means that they'll probably earn less than if you invested the money yourself.
The chief benefit of a simple whole life insurance policy boils down to one thing - consistency. You pay the same premium from day one till you're 120. The cash value portion will always be intact and earning some amount of interest. And the death benefit will never decrease (provided that you don't borrow against it).
In order to purchase whole life insurance, you will almost certainly have to speak with a licensed pro, in order to iron-out details that are beyond the scope of this site. To get in touch with an agent in your area, get a fast quote now.
Two common twists on a whole life policy are "limited payment" whole life insurance and "interest sensitive" whole life insurance.
Limited payment insurance is very similar to standard whole life insurance, only premium payments end when you turn 65. Coverage is still permanent. The total cost of coverage remains the same, but because payments are condensed into a shorter amount of time, the monthly premium will be higher.
Interest sensitive whole life insurance sets the death benefit and premiums permanently, but the cash value fluctuates in accordance with interest rates. The insurance company usually guarantees a minimum your cash value can be reduced to even if the interest rates would make your investments worth less, but make sure you verify this with your insurance company.
These policy variations are not available from all insurers.
The policyholders who benefit most from purchasing a this type of policy may be those who may have little interest or experience in investing, but who want to secure a permanent death benefit.
If you don't see or the need for a permanent policy or need to cut costs, a term life insurance policy might be a better choice. (Read an outline of the term vs. whole discussion.) If, on the other hand, you want permanent protection but with more hands-on control over the cash involved, universal or variable life insurance might better fit the bill.
You need to think carefully about choosing your level of coverage when it comes to whole life insurance. Too often consumers make the mistake of inadequately covering, or, even worse, financially overextending themselves. With a whole policy this would be a tragic error, because defaulting on premium payments can mean policy cancellation and the loss of your entire investment.
This is why it is crucial to assess your needs and confer with an insurance professional before you commit to a plan.
Since buying a permanent life policy with an investment option is not like buying a gallon of milk, we definitely recommend speaking with an insurance professional about your specific needs and situation.
one of our partner carriers is a company specializing in whole life policies, that can match you with an agent in your area who at the very least can answer any and all questions you may have.
Get in touch with them here.