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What is whole life insurance?
Whole life insurance is a type of permanent life insurance policy, which means it’s meant to last your entire lifetime. You pay monthly premiums towards your policy, and it provides you with a set amount of coverage for as long as you live. As with other forms of life insurance, you also designate one or more individuals—called beneficiaries—to receive the policy’s death benefit when you pass away.Key Features and Benefits of Whole Life Insurance
Like all types of permanent life insurance, whole life has three distinguishing features:Lifetime Coverage: Whole life insurance coverage lasts a lifetime. If you currently have a term life policy but are looking for lifelong coverage, you can always convert from a term to a whole life policy.Set Premium: Also called a “level premium,” the premium for whole life insurance never changes. What you pay for the first month is what you’ll pay for every month the policy is in force.Cash Value: A certain percentage of each premium goes toward a tax-deferred savings component called the cash value. You can borrow against your whole life policy’s cash value once certain conditions are met. Whole life insurance also offers various riders that can be added to the policy to enhance coverage. Common riders include the accelerated death benefit rider, which allows policyholders to receive a portion of the death benefit if they are diagnosed with a terminal illness, and the waiver of premium rider, which waives premium payments in the event of disability.Understanding the Cash Value of Whole Life Insurance
The cash value of your whole life insurance is the portion of your policy that can grow in value and accrue interest over time. As the policyholder, you can typically make withdrawals from this part of your policy or borrow against it for significant long-term needs, including mortgage payments, retirement, or your children’s college education. Insurance carriers typically require your policy’s cash value to hit a minimum amount before you’re able to make a withdrawal, so check with an agent to learn more about the details of your coverage.It’s important to note that if you pass away before paying back the withdrawal, your beneficiaries will receive a reduced death benefit to account for the amount you owe towards your policy. You also have the option to cancel your policy, end your coverage, and receive part or all of the cash value. Since whole life insurance policies offer these savings benefits and opportunities, premiums are often higher than those associated with term life insurance policies. However, your premium on your whole life policy will remain the same as long as the policy is in effect.Who should buy whole life insurance?
If you’re looking for a new life insurance policy, it’s important to consider your lifestyle, financial goals, and priorities. With various premiums, death benefits, and terms, comparing life insurance policies ensures you find the coverage that’s right for your unique needs. Whole life insurance may be a good fit for you if:- You want lifetime coverage with the option to borrow against that coverage.
- Your budget allows for a more expensive premium.
- You want to maximize your pension with a life insurance policy.
- You have complex estate planning needs.
Whole vs. Term Life Insurance
Whether whole or term life insurance is the right fit for your needs will depend on your unique circumstances. Whole life insurance offers lifetime coverage and a cash value savings component but is typically more expensive than term life insurance. Term life insurance is more flexible, as you only buy as much as you need, and tends to be more affordable than whole life insurance. However, it does not include a cash value component. Learn more about whole vs. term life insurance.Other Alternatives to Whole Life Insurance
If whole life insurance doesn’t suit your coverage needs, there are other policy types you can explore. These include:- Universal Life Insurance: Universal life insurance is another form of permanent life insurance. The primary difference between whole life insurance and universal life insurance is the interest rate at which the cash value component grows.
- Term Life Insurance: Term life insurance is designed to offer coverage for a specific length of time, typically 10 to 30 years.
- No Medical Exam Life Insurance: A type of term life insurance, no medical exam life insurance offers instant coverage to individuals under 60 in good health.
- Final Expense Insurance: Final expense insurance, which includes guaranteed issue and simplified issue policies, helps cover expenses like funeral costs, medical bills, and outstanding debts after you pass away.
Whole Life Insurance Rates
While whole life insurance is typically more expensive than term life insurance, one of the greatest benefits of a whole life insurance policy is lifelong coverage. Additionally, your whole life insurance premium should never change throughout the duration of the policy.Compare Whole Life RatesFactors That Affect Rates
There are a variety of factors that help determine whole life insurance rates, including:- The amount of coverage you choose
- Your age at the time of purchase
- Your gender
- Your health at the time of purchase
- Your hobbies at the time of purchase