Whole Life Insurance Explained

Today buying life insurance can be a complicated thing to do if you don’t know much about it.  Today their are several different types of policies to choose from, you have term, variable, universal, and even whole life.

In this article though I’m going to spend a few minutes today to explain whole life insurance, what it is, and how it can benefit you.

What Is A Whole Life Insurance Policy

Whole life insurance is known as a permanent policy.  The reason it gets this name is because it is meant to last your entire life, unlike a term policy which is only meant to cover you for a specific period of time.

These policies also have a premium payment that never stops but also never fluctuates or changes.  On top of that these policies also have what is known as a cash value, this is much like a savings account but instead is built right inside the whole policy, and is funded by a small portion of premium payments made to the policy.

The cash value account is a fixed account that earns a stable interest rate and can never be lost.  The reason these policies have cash values is to offset the cost of insurance as you get older.

For example if you have a $100,000 policy and you have $75,000 inside the cash value account you are in reality only paying for $25,000 worth of insurance instead of the full $100,000 like you would with a term policy.

How Whole Life Can Benefit You

The first benefit to this type of policy is that if you buy this policy at a younger age, say less than thirty, and your in good health you will pay a lot less and the premium payments won’t go up over the life of the policy, allowing you to keep the coverage and pay a smaller payment.

The next benefit to whole life insurance is that the cash values will in most cases carry a higher interest rate rather than bank CD’s and money market accounts.  In fact I’ve seen a lot of these policies carry around a 5% savings rate.

Finally, the biggest benefit to this type of insurance is that it will be there for you when you do pass away.  With term insurance you will most likely never use it and end up wasting all the hard earned money you stuck into it.  With whole life you will defiantly see the return on investment as the money will be passed on to your future generations.

Final Thoughts…

As a final thought explaining whole life insurance, I felt it would be good to mention who would be a typical candidate for this type of policy.  First off, if you are someone a bit younger you could benefit greatly from a policy like this because you would be able to get cheaper premiums

Whole life insurance for elderly people may not work as nice since you will have to worry about surrender penalties when getting this type of policy.  The penalties could last as long as 10 years and if your looking to have cash on hand in your retirement years this may not be the proper policy to get.

Finally, consider all of your options.  Don’t go into this process blindly, instead talk to several insurance agents and get illustrations to see what the best possible policy is for you.