The pros and cons of whole life insurance policies
When buying whole life insurance, it is important review the pros and cons of a whole life policy. Like all types of life insurance policies, there are advantages and disadvantages that should be considered before deciding which coverage best meets an individual’s needs and budget.
Because each family needs to compare and determine the different kinds of policies available, as well as how much life insurance they need to buy, the death benefit value, whether they want a savings or investment feature or just pure life insurance, and the policy options and exclusions, just buying life insurance based on quotes and rates will not get you the best and cheapest protection.
In this article, we will review whole life insurance pros and cons and compare them to other policies, such as universal or term life insurance, to help you make a decision on which policy coverage is going to help you reach your financial goals and needs.
Permanent Coverage Offers Security
Whole life insurance is a permanent type of policy that cannot be canceled by the insurance company except for non-payment of premiums, misrepresentation on the application, or insurance fraud. Payment of the death benefit is guaranteed whether the insured person dies 5 years or 50 years after the policy is issued, allowing policyholders to have coverage for a lifetime.
Other types of coverage, such as term life insurance, only protect a policyholder for a specified term period and if the person survives the term, they may have to seek new life insurance, renew their policy, or reapply.
When considering whole life insurance pros and cons, the security offered by permanent life insurance coverage is a definite advantage, especially if the policyholder gets sick in the future, develops a chronic or terminal illness due to preexisting conditions, or has a bad medical history.
It also important to note that if a consumer is serious about buying life insurance, he/she should apply and purchase a policy when he/she is young and healthy. Life insurance rates are primarily based on the statistical chance of death, and factors that contribute to calculating your premiums include age, exercise, weight, lifestyle choices, smoking, etc.
Permanent Life Insurance Rates
Since term life insurance only pays the death benefit if the insured person dies within the policy term, payment of the death benefit is not guaranteed and the insurance company incurs less risk by underwriting a term life policy. If term insurance expires, the insurer retains the policy premiums and pays nothing out. Since payment of the death benefit is guaranteed with a whole life insurance policy, the rates are higher.
However, please note that recent studies by financial experts and advisors suggest that a term life insurance policy renewed multiple times over the course of your life will cost approximately the same as one permanent policy.
This study also took into consideration the fact that whole life coverage has a cash value that accrues with interest and is paid out. When comparing insurance pros and cons to other types of life insurance, the higher initial cost is one of the biggest disadvantages for most consumers since it may not fit with their budget early on in life.
Builds Cash Value
Part of the payment made into a whole life policy is diverted into a savings feature called the policy cash value or equity.
Whole life insurance guarantees a rate of return on the cash value, which grows over time by the accrued compounded interest. Policyholders have the option of redeeming the cash value and canceling the life insurance policy or using the cash value as security for low-interest loans from the insurance company.
When choosing the best life insurance for their family, most people consider these savings feature a major benefit of whole coverage and a great way to help them save for retirement.
Fixed Death Benefit
When considering whole life insurance pros and cons, the fixed death benefit may seem like an advantage, but life insurance needs change over a lifetime.
The death benefit cannot be changed as financial obligations change so there may be times when a policyholder does not have enough life insurance coverage and times when he or she is paying for more coverage than necessary.
Though the lack of flexibility is a drawback, consumers need not be discouraged as term life insurance can supplement your coverage when families need more.
While term life insurance policies offer fixed premiums for the term of the policy, the premiums increase each time the policy is renewed or replaced. On the other hand, whole life insurance rates remain fixed for the insured person’s life.
When comparing whole life insurance quotes, consumers will notice that premiums are higher, but actually, average out to about the same cost as term life insurance over time since permanent premiums never increase. Policyholders do not have to worry about a sharp increase in life insurance rates with permanent policies.
Life Insurance For Living
One of the greatest advantages of whole life insurance policies is their investment value. The cash value or equity can be used in financial planning to save for future financial goals like college tuition, a down payment for a home, or retirement.
Up to 90% of the policy’s cash value can be used as security for low-interest loans with no repayment schedule. When considering the different types of life insurance, the ability to use money from the policy while the insured person is living is a huge benefit for policy-owners.
Whole Life Insurance As An Investment
While receiving a guaranteed rate of return on the policy’s equity is an advantage, the interest rate paid may be lower than other investments and it may not keep pace with the rate of inflation.
For example, universal life insurance invests the cash value in financial markets, such as stocks, bonds, commodities, and mutual funds, which have the greater risk but offer the possibility for higher returns than the guaranteed returns.
Whole life insurance as an investment is most commonly associated with a savings account – it forces families to save money for retirement and pays an interest rate higher than a typical savings account. Unfortunately, don’t expect to become a millionaire overnight with whole coverage.
While some investments may offer better returns than permanent life insurance, the returns are not tax-deferred. A whole policy can provide a tax shelter for affluent individuals since the returns on life insurance are tax-deferred until they are realized gains and removed from the policy.
The equity in a whole life policy can be used to secure low-interest loans which are not subject to income-tax because they are not income. When analyzing life insurance pros and cons, the tax advantages are a plus for many consumers.
Is Permanent Coverage Right For Me?
When consumers examine life insurance, they should know that some of the disadvantages of a whole life insurance policy can be overcome by supplementing their coverage with cheap term policies during times when more life insurance protection is needed.
A term life policy can add flexibility to permanent coverage and since it is temporary, it can be allowed to expire when the need for extra life insurance has passed. Buying different types allows consumers to customize their coverage to their needs, and supplementing term and whole life insurance is highly recommended by experts.
Once advantages and disadvantages have been weighed, consumers can get free life insurance quotes online to compare the rates of different companies.
True Blue Life Insurance is one of the best websites to get quotes from – they are not owned or operated by insurance companies, and offer instant rate quotes from multiple companies so consumers can compare the rates side by side to find the best prices.
It is also possible to compare the rates of different types of policies and deliberate whether whole life pros and cons justify the increased rates.
By weighing the benefits of permanent coverage in relation to the cost, consumers can make an informed decision about whether whole life insurance will offer them the best protection at the most affordable price.
As with any type of life insurance, individuals must decide which policy will offer advantages that outweigh disadvantages.