Whole life insurance is a type of permanent life insurance that covers you for your entire lifetime. Whole life policies are designed to pay out the face amount (the death benefit) upon the policyholder’s death. They typically accumulate cash value with interest over time.
What is Whole Life Insurance?
Whole life insurance1 is a type of permanent life insurance that covers you for your entire lifetime. This means that the policy will always be in force and pays out upon death, with no need to refill or renew it every so often.
The only way to get rid of this coverage is through voluntary cancellation or if an insured person’s health deteriorates past certain specified levels.
With whole-life policies, cash value accumulates over time thanks to interest rates set by the company (typically between 12% – 14%). Unlike term life insurance, which has a fixed duration and offers lower returns on investment, these are designed not just as income replacement but also to protect against inflation and declining expenses associated with aging.
How Does It Work?
Now that I have your attention,
To qualify for a whole life insurance policy, you have to meet certain criteria. These typically include being healthy and of appropriate age (usually between 20 – 45 years old).
The amount of coverage will depend on your plan. Suppose there is a spouse or children involved. In that case, the benefit may be lower than if it’s just one individual purchasing the contract.
The company sets up how much they are willing to pay out upon death – known as the face amount.
They will typically consider your age, gender, and health when setting this amount (i.e., a 45-year old female would have more coverage than an 80-year old male).
The policy also offers cash value over time, which can purchase other things like life insurance for the family or even college tuition.
When you want to buy a whole life policy, you must know what is included with the contract and how much it costs before purchasing one.
Typically there are two types of premium plans: level premiums where all the payments stay constant throughout the lifetime of the plan; and decreasing term rates which start high but gradually decrease until they reach zero at some point in time (usually around age 100).
You can decide which option is better for you based on what the policy will be used for. If it’s going to pay off debt or fund a child’s education, then level premiums are best; if you want cash value at the end of the contract term, decreasing rates should work well.
The amount of insurance coverage that comes with each premium plan differs depending on whether there are children involved in your family and how much risk the company feels like taking before offering the cover (lesser amounts mean a higher rate, as explained below).
Some companies have different options available, including whole life policies without medical exams and those with an accelerated death benefit rider. These are not standard features but depend instead on individual companies – so be sure to read the fine print before buying a policy.
Whole Life Insurance Cost
Each company sets its premium rates, and there is no standardization in the industry, so it’s best not to compare them if they are different.
In most cases, these policies cost more than term life insurance but less than universal life or whole life without children coverage (the latter offers cash value over time).
For example, at age 45, an individual would pay 300 pounds per month for 20 years on level premiums; decreasing rates require payments starting higher at about 450 pounds monthly but dropping as you near retirement age.
As such, interest rates may play into how much you end up paying – those closer to 15% will have lower monthly payments than those at 14% or higher.
One of the best ways to save money on premiums is by purchasing a policy with decreasing rates and choosing level premiums for children if there are any in your family.
These policies would offer better coverage (i.e., you receive more benefits if you were hurt in an accident).
On the other hand,
Another way to cut costs is by asking the company what types of discounts are available – many companies do not advertise their offers, so it’s important that you ask about them upfront when dealing with sales representatives.
For example, some insurance providers may offer certain plans free of charge after paying out a specified amount; others might provide up to 25% off for long-term or high net worth customers.
Suppose you’ve decided on a whole life policy. In that case, there are factors to consider that decide between level and decreasing premiums difficult: age of children vs. your spouse; how much debt you need paying off vs. what type of education will be paid for; if you have access to other investments with higher rates than your current company (i.e., savings accounts, stocks).
These questions should help decide which option is best suited for your needs – whether it’s simply buying term insurance during retirement years or using this as an investment tool for yourself or your family members.
What Types Are There?
There are two types of whole life policies: traditional and universal.
The first is the most common, but it doesn’t offer cash value at any time; this type should be used if you only need to pay off debt or fund a child’s education (i.e., does not require funds after age 100).
The second option offers both death benefits and accumulated interest over time – which makes sense for those who would like an investment vehicle with low risk that can also provide some short-term income until they turn 100 years old (or earlier, depending on when their plan matured).
Considerations To Make Before Buying
If you decide to purchase a whole life policy, several factors should be considered before making a final decision.
The first would involve the age of your children.
If they’re still young, it’s best not to buy this type of life insurance because its cash value will accumulate over time and may exceed their education needs as they grow older; conversely, buying this kind of coverage for someone who is in high school or college can make sense (especially since most policies have an accelerated death benefit rider).
One other consideration involves debt: paying off loans with traditional whole-life premium payments could end up costing more than term-insurance rates later on down the road.
If you need funds for retirement accounts but don’t want to pay high monthly payments, then term life insurance may be a better option; conversely, if you have access to other investments with higher rates than your current company (i.e., savings accounts, stocks), it could make sense for you to purchase this type of policy and use the money as an investment vehicle over time.
Do I Have To Pay Taxes On This?
No, but you do have to pay taxes on any interest or dividends earned within a whole-life policy. Some companies offer 100% tax deferral for customers who hold their policies until age 59 ½ and then start withdrawing funds from it; other providers may require new premiums to be paid out quarterly when they hit retirement age (or whenever all children stop college) to avoid early withdrawal penalties.
What Happens If The Company Goes Bankrupt?
This is unlikely – as such, the company’s life does not rely on cash value, so if one goes bankrupt, another option will always remain available.
How Do I Keep This Policy From Getting Cashed In By My Spouse Or Child?
Some providers will allow you to name a beneficiary – which should be someone other than yourself. If you don’t, then the policy’s cash value will accumulate until it exceeds its death benefit. Your spouse/child can use this money as they see fit at that time (i.e., for their own needs vs. paying off debts or funding educations).
Is It An Investment Vehicle?
Yes, but it is very different from stocks in that there are no quarterly reports on how much has been earned over time; some people will view whole-life insurance as an investment vehicle, whereas others may see this coverage more to protect their family.
The whole life insurance policy should not be a one-size-fits-all type of decision.
You’ll need to determine whether you want the coverage as an investment vehicle or just for protecting your family members in case some unforeseen event occurs; if it’s needed, there are many options available with varying monthly premiums and benefits – which means that while there is no perfect option, every person has the opportunity to find what works best for their financial needs. It’s best to talk with an agent or financial advisor before making any final decisions.