When you have so many options of different life insurance policies in front of you it can be overwhelming. Since everyone’s life and needs are different there is typically no one best policy. Before making your decision on what policy to commit to you need to have all the information. Whole life insurance is a permanent life insurance policy, so before you commit to it, make sure you fully understand it. Here is some information to help you.
What is Whole Life Insurance?
What does permanent life insurance mean exactly? It is an insurance policy that is to cover your whole life as opposed to just a term or period of time. It is to cover the term of your whole life at a fixed amount. As long as you keep up your premium payments, then your beneficiaries will typically receive the death benefit at the end. Whole life insurance insures something inevitable, death, and helps protect you and your beneficiaries with a guaranteed death benefit at the time of your passing.
Advantages of Whole Life Insurance
Some of the benefits of whole life insurance, other than the fact that you are guaranteed financial protection at death as long as your premiums are up to date, is that you may have the opportunity to grow the policy and increase your death benefit without increasing your premiums. Whole life insurance policies are typically offered by mutual life insurance companies, which mean that the companies are owned by the policyholders, like stock. This means that some of these companies may issue dividends which may be applied to your policy and could increase your benefit. This income is typically tax-deferred and your beneficiaries will typically not have to pay taxes. Your beneficiaries may only have to pay taxes on the increase from what you paid in versus what the payout was.
Another advantage of whole life insurance is that there is typically a cash value on your whole life insurance policy. Policy holders can potentially take a loan out on their policy. This may be a way that someone can get money they need if they cannot from a bank. The loan needs to be paid back, but if it does not, the loan amount may typically be subtracted from the death benefit at time of death. This works against you in that you will be decreasing your own death benefit, which may or may not affect you. There is also a cash surrender value where the policy can be cancelled and you will receive the cash surrender value in return. The article “What Can I Expect from Cash Value Life Insurance?” may share more information on the subject.
These advantages are not all inclusive, all insurance companies offer variations of the above benefits of whole life insurance. Main thing is to know that whole life insurance policies are permanent and will cover your whole life. The premiums are relatively higher than say term life insurance policies, but then again, so is the payout.
What you should do
Make sure you understand the difference between the different types of insurance policies that may be available to you. There are slight modifications to whole life insurance policies and riders that may be added to your policy, but each company is typically different as to what they offer. Research and talk to your agent to see what is available but do not stop once you choose a policy. Riders may be able to be added at any time for different reasons. The benefits of whole life insurance may work in your favor if it is appropriate for your situation.