Whole Life Insurance Explained
Whole life insurance policies provide lifelong protection, not just for a specific period such as Term Life Insurance. Whole life insurance covers you for as long as you live and continue to make timely premium payments.
Most Whole Life Insurance policies have a feature known as "cash value" or "cash surrender value." This is a feature which is not found in Term Life Insurance policies.* Whole life insurance builds cash value, which is a return on a portion of your premiums that the life insurance company invests. Your cash value is tax-deferred until you withdraw it. You can borrow against it as well.
The cash values of many life insurance policies may be affected by your life insurance company's future experience, including mortality rates, expenses and investment earnings.
Also, keep in mind that with all types of whole life insurance policies, the cash value of a policy is different from the policy face amount. Cash value is the amount available when you surrender a policy before its maturity or your death. Provided the cash value is sufficient, the face amount is the money that will be paid at death or at policy maturity.
With level premiums and the accumulation of cash values, whole life insurance is a good choice for long-range goals. The guaranteed cash values can provide money later on to help with temporary needs or emergencies.
If you don't intend to keep your life insurance policy for the long term, usually 15 years or longer, Term Life Insurance may be the better life insurance option for you.
Term vs Whole Life Insurance:
Consider These Advantages for Whole Life Insurance
The policy's cash value can be converted into cash or an annuity. A provision or "rider" can be added to a policy that gives you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.
Understand the Disadvantages of Whole Life Insurance vs Term Life Insurance To Help Make the Right Choice
Required premium levels may make it hard to buy enough protection. Premiums are generally higher than those for term life insurance. Coverage may cost more during the early years of coverage when the need for protection is often greatest. Generally costs more to cover needs that will disappear in time, such as mortgages or family income needs for children.
Review the Different Types of Whole Life Insurance Available
Whole life insurance is known by a variety of names:
There are several different types of whole life insurance. The major ones are described below:
Whole Life Insurance or Ordinary Life Insurance
Provides a lifetime guaranteed death benefit, a guaranteed fixed premium, and guaranteed cash values. These policies have the excess earnings (if any) of the insurance company credited to your cash value either as dividends or as excess interest. Similar to Universal Life plans, your cash values can be used to pay future premiums, fund retirement and college education, and provide emergency cash reserves.
Whole life insurance typically provides the best investment rate of return per dollar of premium. In summary, whole life insurance is for the person who wants guaranteed permanent coverage with a guaranteed premium for the rest of their life.
Universal Life Insurance or Adjustable Life Insurance
Is a flexible permanent product that allows policy holders to design their own plan. You can adjust your premiums from year to year, increase or decrease your death benefit, and still accumulate savings with tax advantages. Universal life insurance is a popular first time permanent policy for budget minded young families with changing needs. This plan is often used as a low cost, level premium alternative to Term Life Insurance when coverage is needed for many years. Since term life insurance will eventually have increasing premiums and often requires re-qualification by passing a new medical exam, your term life costs will ultimately become very expensive. On the other hand, universal life insurance will give you the security of a guaranteed death benefit with a low, level premium.
Survivor Life Insurance (Second-to-Die)
Is a special plan covering two lives, typically a husband and a wife, or business partners. These plans are designed to provide cash to cover estate taxes or business liability which have to be paid after both people have died. The survivor plan premium is often much less than if individual coverage was purchased on each life. These plans can be based on either whole life or universal life insurance. We suggest that if you are considering survivorship life you should talk to an IntelliQuote Insurance Agent since these plans are highly customized to fit your personal needs.
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