Of all the different types of life insurance products available, Whole Life insurance is considered to be a foundational product.
Also known to many as “ordinary life” or “straight life”, whole life has been surpassed by newer products that will provide the same guaranteed earnings but with higher returns and much lower rates.
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Whole Life Compared to Other Life Insurance
Although most life insurance products have some similarities, there are many different aspects that make up the different products.
Term Life Insurance
Although Term Insurance is considered to be one of the most popular types of life insurance, it contains many differences compared to Whole Life. Term insurance is considered temporary coverage because the policy term is limited to a block of time, typically 5, 10, 20, and 30 years.
Since the insured is paying only for the cost of insurance, term insurance policies do not build cash value over time.
Term insurance rates are much lower than whole life rates, because the mortality rate for insured policyholders is much lower than whole life, and term policies typically stay in force for only about seven years.
Once the policy expires, coverage stops unless a renewal is offered based on the insured’s new age, and then accepted by the insured.
Universal Life Insurance
Although considered a permanent type of insurance, Universal Life offers more flexibility. With universal life, the policyholder has the ability to change the amount of the periodic premium, change the face amount of the policy, and earn more than the established minimum interest if the company’s portfolio earns more than the minimum.
The universal life policyholder can access the cash value in the policy through loans or partial surrenders. The cash account, however, must remain at a level sufficient to support the cost of insurance or the policy can lapse due to lack of funds. Although typically more expensive than term insurance, universal life rates are lower than whole life.
Variable Life Insurance
Variable life insurance is also considered permanent if properly funded. These types of policies contain an investment component. The policy contains a cash value account that is invested in a number of sub-accounts. The sub-accounts are typically similar to mutual funds that earn interest.
Other types of variable life insurance products, such as Indexed Universal Life, allow the policyholder to invest in indexes such as the NASDAQ and S & P 500.
Pros and Cons of Whole Life Insurance
As with any insurance or investment product, there are advantages and disadvantages for the consumer, but these depend on your economic situation and your ultimate purpose for considering the product.
So the bottom line here is that you have fewer reasons to avoid whole life than to purchase it. Again, your consideration should be based on your current financial position and your needs for the product.
Different Types of Whole Life Insurance
It’s doubtful that anyone could accuse the insurance industry of not being creative. Over time, the three basic life products, whole life, term, and universal life, have been modified to meet the needs and interests of the marketplace.
Joint and Survivor Life
Joint and Survivor life is a modified whole life policy that is typically used to insure couples. With this type of policy, the death benefits are not paid until both of the policyholders have died.
Since these policies are typically in force for a longer period before a claim is paid, the premiums are lower than if both parties had separate policies.
The policyholder has the option to elect the death benefit to be paid on a first-to-die or second-to-die basis. Joint and Survivor life is often used as a tool to deal with estate taxes.
Modified Whole Life
This policy is modified by having an initial lower premium in the first five years and then increases to a level slightly above the normal premium thereafter.
Graded Premium Whole Life
This type of whole life policy starts with a low initial premium that increases gradually on an annual basis until it levels out.
Single Premium Whole Life
This whole life policy is paid for by a single premium of the policyholder for a future death benefit. Because all the premium is paid in advance, the insurer will also charge a lower rate for the insurance.
Agents have to be familiar with the consequences if the premium paid results in the policy being classified as a modified endowment contract which could subject it to tax liabilities and early withdrawal penalties.
When Is Whole Life Insurance Right For You?
Although Whole Life insurance is the most expensive product when it comes to your cost of insurance there are many legitimate reasons to consider purchasing it.
When you are considering a life insurance purchase, always seek advice from a reputable and experienced broker who promises to put your needs ahead of everything else, and will answer every question and help you navigate the confusing landscape of life insurance.
For more information about Whole Life Insurance and to see what makes the best financial sense for you, call us at (800) 595-1130 during normal business hours or contact us through our website.
Frequently Asked Questions
What are the disadvantages of whole life insurance?
For individuals looking for low-cost life insurance, whole life will likely not be a good choice. Additionally, it can take years to build cash value unless the policyholder pays significantly more than the minimum premium.
What does whole life mean?
Whole life is permanent life insurance designed to provide coverage for the entire life of the policyholder.
How long do you pay on whole life insurance?
Most insurance companies offer several periodic payment plans with their whole life policies. These plans are generally single pay, 10-year pay, 20-year pay, pay till age 65, and monthly pay for the life of the policy.
What happens if I outlive my whole life policy?
Since whole life insurance covers the insured for a lifetime, you would not be able to outlive your policy.
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