It is important to have a whole life insurance policy in order to ensure that you are protected for as long as you live rather than just a specific period of time. Whole life insurance will protect you as long as you continue to make timely payments on the plan.
The average Whole Life Insurance policy has a feature known as “cash value” or “cash surrender value”. This is not included with Term Life Insurance. Whole life enables you to build cash value and reap a higher return on a portion of your premiums invested by the company. The cash value you earn is tax-deferred until you withdraw it, or can be borrowed against.
The cash value of your policy may be affected by your company’s expenses, mortality rates, future experience, and investment earnings.
It is important to remember that the cash value of whole life insurance policies varies from the policy face amount. Cash value is defined as the available amount when you give up a policy before its maturity or your death. If your cash value is sufficient, the face amount will be paid at your death or at policy maturity.
If you have stable premiums and a consistent accumulation of cash values then whole life insurance is a great option for your longterm goals. Cash values are an easy way to guarantee yourself emergency money or help with temporary needs.
If you have no intention of keeping your policy for more than or up to 15 years then Term Life Insurance may be a better 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.
- If your policy give you the option then a provision or ”rider” can be added without proof of a recent medical exam or evidence of insurability.
- Required premium levels often make it difficult to purchase high 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.
Understand the Disadvantages of Whole Life Insurance vs Term Life Insurance To Help Make the Right Choice Review the Different Types of Whole Life Insurance Available
Whole life insurance is known by a variety of names:
- Permanent Life Insurance
- Survivor Life Insurance
- Standard Life Insurance
- Universal Life Insurance
- Ordinary Life Insurance
- Variable Life Insurance
- Adjustable Life Insurance
There are several different types of whole life insurance. The major ones are described below:
Whole Life Insurance or Ordinary Life Insurance
Whole Life Insurance provides you with a lifetime guarantee of a death benefit as well as a fixed premium and cash value. These policies enable any excess earnings from the insurance company to be added to you cash values as dividend or interest, cash values can also be used to pay premiums, fund retirement or education, and provide an emergency fund for your future.
Whole life insurance is ideal for the person who is interested in guaranteed coverage as well as a guaranteed premium for the rest of their life. This is typically considered the best investment rate return on your premium.
Universal Life Insurance or Adjustable Life Insurance
Universal, or Adjustable Life Insurance is a very flexible product that allows for the security of a permanent plan along with the ability for a policyholder to alter the plan to fit their needs. You are able to adjust your premiums every year by increasing or decreasing the death benefit while still enjoying tax advantages. Universal life insurance is a popular choice for a first time permanent plan holder, particularly with young families with changing needs and strict budgets. An adjustable plan is often used as a low cost, level premium alternative to Term Life Insurance when coverage is needed for a long period of time. Term Life Insurance has continually increasing premiums and often requires re-qualification by taking a different medical exam. Term Life insurance becomes very expensive if it is used for multiple years. Universal Life Insurance offers the security of a death benefit with lower, stable premiums.
Survivor Life Insurance (Second-to-Die)
Survivor Life Insurance is unique in that it is designed to cover two people simultaneously. This is typically purchased for a husband and wife or for business partners. These plans provide cash to cover business liability or estate taxes that have to paid after both people have died. Survivor plans often have much lower premiums than individual life insurance and can be based on either whole life or universal insurance.