April 4, 2014 6:00 pm EST
What is whole life insurance?
A whole life insurance policy covers you for your entire life, not just for a specific period such as term insurance. Your death benefit and premium in most cases will remain the same. Whole life insurance also builds cash value, which is a return on a portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw it and you can borrow against it.
Are there choices within whole life insurance?
Yes, the most common choices include traditional, interest-sensitive, and single-premium whole life insurance policies. A traditional whole life insurance policy gives you a guaranteed minimum rate of return on your cash value portion. An interest-sensitive whole life insurance policy gives a variable rate on your cash value portion, similar to an adjustable rate mortgage. With interest-sensitive whole life insurance you can have more flexibility with your life insurance policy such as increasing your death benefit without raising your premiums depending on the economy and the rate of return on your cash value portion. Single-premium is for someone who has a large sum of money and would like to purchase a policy up front. Like other whole life insurance options, single-premium whole life insurance accrues cash value and has the same tax shelter on returns.
What are the benefits of choosing a whole life insurance policy over other types of life insurance policies?
Unlike term life insurance, a portion of your premium money goes toward your cash value which in turn could pay off your entire policy only after a few years. Also, your premium will remain constant during the time you are covered unless you choose otherwise. And, unless you make a change to your whole life insurance policy, you have lifelong coverage with no future medical exams. Whole life is also a good choice because of the tax savings.
Should I purchase a whole life policy for an investment?
The rate of return on a whole life insurance policy is very low compared to other investments, even with the tax savings factored in. Most investment professionals would agree that life insurance should not be used solely as an investment tool and you should judge your policy choices on the protection and not the rate of return. But, if you are in need of life insurance, the tax benefits and cash value is an added bonus when purchasing protection for your loved ones.
February 8, 2014 5:46 pm EST
Deciding whether to purchase whole life or term life insurance is a personal decision that should be based on the financial needs of your beneficiaries as well as your financial goals. Life insurance can be a very flexible and powerful financial vehicle that can meet multiple financial objectives, from providing financial security to building financial assets and leaving a legacy.
Here are some of the main features of term and whole life insurance.
- Features of term life insurance:
- Provides death benefits only
- Pays benefits only if you die while the term of the policy is in effect
- Easiest and most affordable life insurance to buy
- Purchased for a specific time period, such as 5, 10, 15, or 30 years, known as a “term”
- Becomes more expensive as you age, especially after age 50
- The term must be renewed if you want coverage to be extended beyond the term length
- Can be used as temporary additional coverage with a permanent life insurance policy
- Can be converted to whole life insurance
- Features of whole life insurance:
- Covers you for life
- Provides death benefits as well as a cash value accumulation that builds during the life of the policy
- You typically must qualify with a health examination
- Can be purchased without a medical exam, but at a higher cost
- Takes 12 to 15 years to build up a decent cash value
- Can be a good choice for estate planning
- Cash value is based on how much the return on investment is worth
- A portion of the cash value can be withdrawn or borrowed during the life of the policy
- Initially has more expensive premiums than term life insurance, but can potentially save you money over the life of the policy if in force for a considerable number of years
November 24, 2013 4:04 pm EST
Life insurance is a big choice for any person to make. It doesn’t just involve them, it involves their entire family being in on the process of getting whole life insurance. There are a bunch of different types of life insurance policies, but whole life is a great choice as a policy to go for.
Term life policies with protect you for a certain amount of time. If you get a 20 year policy, this policy ends at the 20 year mark, a whole life policy will cover you for the duration of your life. A whole life policy also has a cash value. This means that some of the money you pay into the policy every month is saved or invested, so you can be able to take money out of the policy or borrow against it.
What are some benefits to having a whole life insurance policy?
You beneficiaries are covered for the duration of your life. This makes people more comfortable than with the time limit placed on a term policy.
If you or your beneficiaries don’t file a claim, the money you pay into the policy every month isn’t a waste of money, but has a cash value for which you can draw on.
If you happen to be a high-income person who maxed out your tax deferred investments, a variable or variable universal policy serves you as an additional savings or investment tool.
Making a decision on what life insurance to choose is a difficult, but it doesn’t have to be too difficult. The important thing is choosing a policy that best looks out for you and your family.