Whole Life Insurance Review

Life insurance is designed to protect your family’s economic situation in the event of your death. The loss of a loved one, whether expected (due to a lengthy illness or other cause) or sudden, can devastate a family in many ways.

Life insurance provides an assurance that the devastation will not extend to finances.

Always make sure to compare policies and prices before making any decisions. The FREE search tool above will help you get started.

What types of life insurance are available?

Term and whole are the two basic types of life insurance. Both types provide the same basic coverage which is a cash “benefit” upon the policyholder’s death.

While both types of coverage may require a medical check-up, underwriting dependent on health concerns and certain exclusions, term and whole life policies differ significantly in how they protect your family.

Term Life

Term Life provides coverage for only a certain time frame (for example, a 20-year term). The coverage needs to be renewed at the end of the term of the policy which means new underwriting and, most likely, an increase in premium.

Term policies have lower premiums based on the length of the policy and the age at which you enroll.

Whole Life

Whole Life proves coverage for “your whole life" as long as premiums are paid. Whole life premiums and benefit amount remain stable from the amount determined at coverage inception. Premiums are based on the age at which you enroll and the amount of coverage you want. Under the whole life insurance category there are three different types of policies:

• Universal Life – When you pay premiums, some of the money goes into a savings or investment account held by the insurer with remaining premiums paying for the death benefit. The risk is on the insurer because they guarantee the benefit amount regardless of how the economy would affect the premium investment returns.
• Variable Life – As with Universal Life, a portion of the premium goes to a savings or investment account and a portion directly toward the death benefit. However, with Variable Life insurance the insured has the ability to change the amount of premiums they pay by using some of the investment returns. The risk of ensuring that there is enough funding to reach the death benefit amount specified on the policy is on the insured. By varying premiums, there is no guarantee that funding will reach the death benefit amount.
• Variable Universal Life - A combination of the benefits of both Universal Life and Variable Life, there are both a guaranteed death benefit and variable investment opportunities. Variable Universal Life keeps your premiums financially safer than a variable policy and is much more flexible than a universal policy.

Pros and Cons of Whole Life Policies

Whole life policies are “permanent” coverage for you for life and offer many benefits including:

• You’ll have no need to shop for new policies every 10 years or at the end of a policy term. Once you pick your benefit amount, it remains the same for life.
• You can borrow against your own funds for expenses that pop up. The value of a policy is immediately high and allows you to borrow against yourself rather than taking out a separate loan.
• These policies can serve as an additional investment or savings account if the policyholder has contributed the maximum on tax-deferred investments.

However, Whole Life is not for everyone. Particularly those on a tight budget.

• Whole Life policies have significantly higher premiums than term life policies because insurers want to guarantee that they’ll have enough to cover the death benefit decades from now.
• Policyholders may overspend if they don’t want or require the same amount of coverage later in life. For example, if you purchase a whole life policy at age 35 when you have four children living at home, your monthly expenses (and projected future expenses) are much different than they will be when you are age 65, living only with your spouse with no children or grandchildren at home.
• Policies offer limited investment opportunities for the portion of the premium that may be invested. Whole life policies are not direct investment opportunities. Insurers may only offer a few choices in regard to where the additional premium dollars can go.

Why should I consider a whole life policy?

Although the premiums are significantly higher than a term life policy, the following additional benefits may appeal to someone on a budget:

• Your funds are almost guaranteed growth. Although this growth may be only 2-4%, it is a better guarantee than many investment products can offer.
• Unlike other investments, dividends from your policy are not taxable. When you are eligible for dividends, you can reinvest or use for expenses.
• Regardless of any changes in your health, you have guaranteed insurance coverage. If your health changes during a term life insurance policy, you may have difficulty obtaining new coverage. However, with a whole life policy, your coverage will not be cancelled due to a newly diagnosed medical issue.

How much life insurance coverage do I need?

While selecting a policy can be a complicated decision when you weigh the benefits of different types of coverage, the most important decision you will need to make is how much coverage you should purchase.

Life insurance can be most important for parents with children still at home because ensuring the financial stability of the family despite a breadwinner’s loss is critical. When determining the amount of coverage you should purchase, consider calculating the following costs that will or may arise:

• Funeral costs
• Medical costs
• Outstanding debt
• The equivalent of five to seven years of your income
• College and/or wedding expenses for your children

Selecting life insurance can be a complicated process because few people want to think about end of life concerns. However, ensuring that your family is taken care of after your death is one of the best things you can ever do for them.

While term life can provide your family with the security it needs, whole life policies can provide extra benefits at the times they need it most.

Be sure to compare quotes using the FREE tool below easily!