Looking for life insurance that’ll cover you for the rest of your life? Whole life insurance is most likely going to check all the boxes and be exactly what you’re looking for.
With whole life insurance, as long as you pay the premiums, you’ll be covered for as long as you live. In addition, your premiums will be consistent over time and the death benefit is set at the time of purchase. Additionally, whole life insurance includes a savings portion called cash value.
Keep reading for everything you need to know about whole life insurance.
What’s Whole Life Insurance?
Whole life insurance is a permanent life insurance policy that covers you for your entire life, as long as you continue to pay the premiums on time. Term life insurance on the other hand will only provide coverage for a certain amount of time like 10 or 30 years.
In addition, whole life insurance also offers a cash value component. This may allow you to take out a loan against your policy or you could even withdraw some of the funds, in the event of an emergency. The cash value is the savings portion of your policy and with each premium, some of the money you pay goes into that savings fund.
You’ll have to check with your insurance provider to determine when or even how you would be able to withdraw or borrow against the cash value as each company has its own set of rules you’ll have to follow.
The Life Insurance Portion
As we discussed above, whole life insurance is going to provide coverage for the rest of your life. This could be 10 years or it could be 50. However long you live and continue to pay your premiums, your beneficiaries will receive a death benefit.
The death benefit is a tax-free amount paid to whomever you designated as the beneficiary. The death benefit is determined when you purchase the policy. Your beneficiary could be a person, multiple people or even a non-profit organization or other organization.
The Cash Value Portion
The cash value portion of your policy is a living benefit for you as a policyholder. If you need to, you’ll likely be able to access this savings portion of your policy. Don’t worry that a withdrawal will reduce your death benefit because they won’t. However, if you take out a loan against the cash value and leave a balance when you die, the death benefit will be reduced to pay off the outstanding amount of the loan.
If you’re looking to build cash value, you can make extra payments on top of the scheduled premiums. Also, the dividends you receive from the policy can be reinvested into the cash value and earn interest.
This cash value portion is separate from the death benefit and your beneficiaries won’t have access to this when you die. Some people get confused here and think their loved ones will receive the death benefit and the cash value, but this isn’t the case.
Pros And Cons Of Whole Life Insurance
Being able to count on having a life insurance policy for the rest of your life is a definite pro. Knowing your loved ones can be secure in the event of your death is likely to give you some peace of mind.
Another benefit of whole life insurance is that the premiums will stay level for the entire length of the policy. The insurance company won’t be able to raise the price of premiums as you age or if you become sick. While that’s all well and good, the cost of the premiums is going to be much higher than say a term life insurance policy. This is because with whole life insurance a death benefit will be paid out and with term life insurance, you may outlive the policy.
The cash value portion of your policy is a bonus which allows you to possibly recapture some of what you have spent on the insurance and it’s guaranteed a return each year, but when or if you withdraw from it, you’ll be hit with some administrative fees and other penalties which cut into those earnings.
How Much Does It Cost?
The cost of your whole life insurance is going to vary based on the company, but also how much coverage you decide to purchase. No matter how much coverage you purchase, your premium is going to stay level for the length of the policy and as long as you continue to pay it, you’ll be covered.
The premiums are going to be higher than with other policies because there’s a guaranteed death benefit. With term life insurance, you could outlive your policy, and the insurance company won’t have to pay out on the policy, as they’ll with whole life insurance.
Whole life insurance offers peace of mind in its permanent coverage and fixed premiums. There are no surprises when it comes to what you are purchasing. When considering any life insurance policy, it’s important to talk to a licensed agent who will help you make the right choice. After learning more about whole life insurance, you might find it’s the right choice for you.