Is Whole Life Insurance Right For Me?

By Jesse Schrader

There are so many components to whole life (also called permanent insurance) that it is hard to give a concrete definition. Every insurance company has different features with their whole life coverage. However, in general whole life insurance consists of these key attributes:

- Covers the insured for their whole life
as long as the premiums are paid for the policy, the insured is covered for the face amount (dollar benefit chosen) for their entire life. The one exception is if the insured lives to 100, then you win the game and can get the full benefit amount while you are still living.

- Premiums remain the same for the life of the policy
whole life policy premiums will never change as you get older. This means if you are paying $30 at 30yrs old, you will still be paying $30 when you are 70. Obviously, the younger you are when you purchase the policy the lower your premium will be.

- Builds Cash Value
every time your premium is paid, the insurance company invests part of your premium. That money grows tax deferred and usually at a guaranteed rate. This cash value can be borrowed against by the insured for different reasons. This could include paying your premium. If a policy is canceled, the cash value is given back to the owner of the policy. If the insured dies, this cash value is given to the beneficiary along with the face amount and is not taxed.

Pros and Cons of Whole Life Insurance

PROS

- Builds cash value that can be borrowed against to pay future premiums. When a policy is surrendered, the cash value can be paid to the owner of the policy.

- Policy covers you for your whole life, so you know you are covered for a certain amount regardless of any circumstances.

- Policy premiums will never change, so you know what you will be paying at all times.

- Possible paid up insurance. If a policy is surrendered, the cash value can be used to buy a lower amount of insurance that will cover you for life. So you will not have to pay any premium, and still have coverage.

- Some policies have a waiver of premium rider. In the event of a disability, the company will waive your premiums, so you no longer have to pay for the policy. Meanwhile, the policy will continue to grow cash value as if you were paying for it and you are still covered!

- Some can contain riders that allow a person that has been diagnosed with a terminal illness to obtain their death benefit before death.

CONS

- Traditionally more expensive than other forms of life insurance such as term life insurance.

- There can be strict underwriting on these policies so they are harder to qualify for.

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