Whole Life Insurance

Whole life insurance is a type of permanent life insurance, which means the insured person is covered for the duration of their life as long as premiums are paid on time. Permanent life insurance differs from term life insurance, which covers the insured person for a set time (usually between 10 and 30 years).

Like most permanent life insurance policies, whole life also offers a savings component called “cash value.”

The amount of coverage is defined when the policy is purchased and is paid back to the nominee at the time of the demise of the assured person. Usually, the maturity of the whole life policy is 75-80 years. If the person assured dies earlier, the nominee is given the sum assured. But, if the person confirms it survives at 75-80, the insurance provider pays the matured whole life policy coverage to the policyholder.

You can borrow money against the account or surrender the policy for cash. But if you don’t repay policy loans with interest, you’ll reduce your death benefit, and if you surrender the policy, you’ll no longer have coverage.

Features of Whole Life Insurance

Although it’s more complicated than term life insurance, whole life is the most straightforward form of permanent life insurance. Here’s why:

• The premium remains the same for as long as you live.
• The death benefit is guaranteed.
• The cash value account grows at a guaranteed rate.
• Some whole-life policies can also earn annual dividends, which pay back a bit of the insurer’s profit. You can take the dividends in cash, leave them in your account to earn interest, or use them to decrease your premium payments, repay policy loans or buy additional coverage. Dividends are not guaranteed.

Benefits of Whole Life Insurance

Whole life insurance never expires.

One of the most appealing benefits of purchasing a whole life insurance policy is that as long as the premiums are paid, the death benefit will never expire. It is guaranteed to be paid regardless of when the insured dies, whether tomorrow, in five years, 80 years, or even further away.

That’s a critical difference between whole life insurance and term insurance, where the latter will only pay the death benefit if the insured passes away during the tenure of the insurance policy is valid.

Premiums on whole life policies stay the same.

Insurance premiums could be monthly, quarterly, or annual.  Premiums must be paid whether you have a whole life or another insurance policy.

Some types of insurance policies may require or allow to adjust of the premiums over time. But the premiums you pay for your whole life insurance policy are guaranteed to remain fixed and consistent for as long as the policy is valid. Premium contributes to the cash value of the policy.

Whole life insurance builds cash value.

Cash value is one of the vital living benefits of whole life insurance. A portion of every premium payment is added to your policy’s cash value, accumulating slower in the policy’s early years. This money keeps getting and allows a withdrawal at any time when required. Since it’s guaranteed and never to go down, it can become an important, stable part of your financial plan.

Whole-life policies can earn dividends.

In addition to guaranteed cash value growth, many life insurance companies pay dividends. While you can take dividends as cash or use them to pay a portion or all of your premium, many people reinvest them in their policies. That can allow your death benefit and cash value to accumulate quickly.

Comparison Between Term Life and Whole Life Insurance Plans

Term Life Insurance vs. Whole Life Insurance: Which One to Choose?

Term life is sufficient for most families who need life insurance, but whole life and other forms of permanent coverage can be helpful in certain situations.

Choose Term Life Insurance, if you:

• Only need life insurance to replace your income over a certain period, such as the years you’re raising children or paying off your mortgage.
• Want the most affordable coverage?
• Think you might want permanent life insurance but can’t afford it.
• Buying a cheaper term life policy lets you invest what you would have paid for a whole life policy.

Choose Whole Life Insurance, if you:

• Have a lifelong dependent, such as a child with disabilities. Life insurance can fund a trust to care for your child after you’re gone. Consult with a lawyer and financial advisor if you want to set up a trust.
• Want to spend your retirement savings and still leave an inheritance or money?
• Want to equalize inheritances. If you plan to leave a business or property to one child, whole life insurance could compensate your other children.

Is Whole Life Insurance is as an Investment?

While whole life insurance policies act as an investment vehicle because of the cash value it accrues, it couldn’t be considered a pure investment product.  Pure investments are oriented towards the growth of money over time and don’t provide any life insurance features. Instead, whole life insurance should be viewed as a life insurance product and an investment element. It protects loved ones from experiencing a financial burden in the event of the insured’s death.  The death benefit can help ensure they don’t have to dip into their savings or investments to handle pending financial goals.

Conclusion: Is Whole Life Insurance A Good Choice?

Unless you require it, whole life insurance is usually not a good choice. However, if you’ve already taken pure and investment-oriented insurance plans, then whole life insurance may be a wise investment if you need lifelong coverage.

Consider that whole life insurance protection is expensive and takes many years to generate adequate investment returns. As a result, it’s usually only a viable option if you’re young, affluent, and wish to leave money to your family and relatives.