What is Whole Life Insurance?

When choosing the type of life insurance that best fits your needs, you have plenty of options. Policies might include all sorts of choices, but there are two main types to choose from. Those are term and whole policies. 

So, how do you know which type is the best choice for you? The only way to answer that question is to learn about each form of insurance. This article is here to help you better understand whole life insurance benefits and decide if this permanent policy suits your life’s needs. 

Defining Whole Life Insurance

A whole life policy is form of permanent insurance, meaning it lasts for your entire life. It can also be called a cash value insurance policy as the amount paid out grows over time. Your insurer sets the rate for growth at a certain interest amount. 

Keep in mind that your return on investment will be less than traditional methods because the insurer deducts administrative and policy management fees. The cash value will still grow regardless, but not at the rate other of investment options. 

Like other life insurance, a whole policy pays out in the event of your death. There are no set time limits where a policy can be cashed out, providing your beneficiaries with money to pay funeral costs, bills, and anything else they might need. 

Unlike other policies, whole life insurance also includes a guaranteed cash value in addition to the death benefit. This can help increase the financial coverage you’re able to provide to your loved ones if you pass away and are no longer able to provide them with your income. 

Is Whole Life Insurance Right for You? 

In most cases, more traditional investment options like a 401(k) or IRA will provide your beneficiaries with more money in the event of your passing. For milestones like marriage, pregnancy, or a larger investment like a mortgage, then term life insurance is usually the better options since it’s cheaper and provides the same level of coverage.

If you have a unique financial situation, such as a high net worth, or take care of a lifelong dependent, then whole life is an excellent choice to provide additional money to those who rely on you after your death. 

The Cost

You can expect to pay five to fifteen times as much for a whole life insurance policy compared to a term one. The benefit amount does not increase, but it does include the cash value that term does not. The amount you pay is determined by the following factors:

  • Health
  • Age
  • The amount of coverage
  • Supplemental coverage options
  • Customization to the policy

A Note on Benefits

While the majority of whole life insurance policies increase their cash value at a set rate, there are cheaper versions that do not. Some also increase the death benefit amount in addition to the cash value. Always review the policy carefully before signing. 

Other Permanent Options

If you want a lifetime of coverage but aren’t sure about whole life insurance, then you have a few options. There’s single premium, in which you pay only one lump sum for a whole policy. There are also various forms of permanent policies that grow cash value but at different rates, netting a better return on investment.