Advantages of Whole Life Insurance; Why Benefits Outweigh Costs

When you are choosing an insurance policy, it's easy to become overwhelmed by the myriad of choices available to you, but the advantages of whole life insurance may make this particular insurance choice rise to the top for many people.

What is Whole Life Insurance?

As indicated by the name of this type of insurance, it is an insurance policy that remains in effect throughout the insured's life, paying a benefit upon the death of the insured. Unlike term life, which expires after a specified amount of time, whole life provides a guaranteed benefit upon the natural death of the insured (as with most life insurance policies, there are exclusions for suicide). Also different than term life, whole life insurance policies build cash value. 

Whole Life Cost

In most cases, you will be required to pay monthly or annual premiums into your whole life policy to keep it active. The premiums for whole life insurance are higher than those for term life, but the advantage is that the death benefit is guaranteed. Some policies will allow you to set a period of time in which premium payments are made, after which the policy is considered paid in full.

Participating vs Non-Participating

With whole life insurance, you can either develop a participating policy, in which you receive a dividend or refund if the actuarial estimates are high and the company earns a profit, or a non-participating policy. In non-participating policies, all of the terms of the policy are set at the policy's inception and if the actuary's estimates are high, the insurance company retains the profits. However, in a participating policy, it is likely that your premiums will be slightly higher than in a non-participating policy.

What to Look for in a Whole Life Policy

When you are shopping for a policy, keep in mind that you should be comparing more than just the price of premiums. Read the agreement carefully and make sure you fully understand any exclusion to the coverage provided. Do the math. If you are fairly young, a universal life insurance policy may be a better investment for you.

Whole life policies do build cash value and can be used as assets against loans, provided you are healthy enough to continue making premiums. You can also take a loan against the value of the death benefit tax-free, but should you allow the policy to expire you would end up being required to pay taxes on the loaned money.

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