Whole Life Insurance

What Is Whole Life Insurance? 

Whole life is a type of life insurance contract that provides insurance coverage of the contract holder for his or her entire life. Upon the inevitable death of the contract holder, the insurance payout is made to the contract’s beneficiaries. These policies also include a savings component, which accumulates a cash value. This cash value is one of the key elements of whole life insurance.

 

Similarities & Differences to Term Life Insurance 

  • Just like term life insurance, beneficiaries exist in a whole life insurance policy. They receive the death benefit upon the contract holder’s death.
  • The most obvious difference, at least superficially, is cost. In some cases, whole life insurance premiums are three to five times as much as term life premiums, at least at the onset. However, term life insurance lasts a “term”: a specified period, usually 10 or 20 years, before the policy expires. The younger you are and the better health you are in, the lower the cost. When the term is up, you can renew the policy, generally at a much higher premium, and depending on your age and health. Whole life insurance premiums, while higher initially, never go up – this is key. The policy is structured to last your entire life, and as long as you keep paying the premiums, the policy will be in force regardless of age and health.
  • The premiums in whole life policies go towards a cash value as well as a death benefit – term life has just a death benefit.

 

Are the Higher Premiums Worth the Cost? 

Are the higher premiums worth the cost? In a word, yes. 

The first key advantage of whole life insurance is that the cost of the premiums paid to the policy never increases, as long as you make sure to pay the premiums and the policy doesn’t lapse. The reason why this is important is because with term policies, your rates rise over time. This is due to the changes in your health and age. As you get older, your chances of dying increase. Since the life insurance company takes on that risk, they increase the cost of premiums. 

With whole life insurance, the premium cost stays the same as long as the policy is in force. Even if you become gravely ill, the cost never changes. It’s guaranteed – as long as you pay your premiums. In fact, as the years go by, the policy actually gets cheaper. This is because of inflation, which erodes the value of money. By having a premium that never changes, you are essentially paying for the policy with “cheaper dollars.” 

The cost of term life policies, on the other hand, is only guaranteed until the end of the term – usually 5, 10, or 20 years. After this point, term policy premiums can be raised based not just on your age and health, but also on the rise in inflation.

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