What are the Advantages of Whole Life Insurance
To begin with, you need to understand that life insurance falls into two very broad categories: Whole Life Insurance and term. The basic difference between them is this: A term policy is life coverage only.
In a whole life policy, as long as you continue to pay the premiums, the policy does not expire for a lifetime. As the term applies, whole life provides coverage for the entire life or until the person reaches the age of 100. Whole life insurance policies build up a cash value (usually beginning after the first year).
With whole life, you pay a fixed premium for life instead of the increasing premiums found on renewable term life insurance policies. In addition, it has a cash value feature that is guaranteed. In term and whole-life, the full premium must be paid to keep the insurance.
With level premiums and the accumulation of cash values, this policy is a good choice for long-range goals. Besides permanent lifetime insurance protection, it features a savings element that allows you to build cash value on a tax-deferred basis. The policyholder can cancel or surrender the life insurance policy at any time and receive the cash value. Some insurance policies may generate cash values greater than the guaranteed amount, depending on interest crediting rates and how the market performs. The cash values of life insurance policies may be affected by a life insurance company's future performance.
Unlike whole life policies, which have guaranteed cash values, the cash values of universal life insurance policies are not guaranteed. You have the right to borrow against the cash value of your whole life insurance policy on a loan basis. Supporters of whole life insurance say the cash value of a life insurance policy should compete well with other fixed income investments.
Unlike term life policies, this policy provides a minimum guaranteed benefit at a premium that never changes. One of the most valuable benefits of a participating whole life insurance policy is the opportunity to earn dividends. The insurance company based on the overall return on its investments sets earnings on a whole life policy. In addition, while the interest paid on universal life insurance is often adjusted monthly, interest on a whole life policy is adjusted annually. Like many insurance products it has many policy options.
Make sure you can budget for the long term and do not buy unless you can afford it. You should buy all the coverage you need now while you are younger, and if you cannot afford whole life insurance, at least get Term. That is why whole life insurance policies have the highest premiums it is insurance for your whole life, no matter when you pass on. The level premium and fixed death benefit make whole life insurance very attractive to some. Unlike some other types of permanent insurance, you may not decrease your premium payments.
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Also published on Medium.