Whole life insurance refers to a permanent policy that provides a fixed death benefit to beneficiaries. It further guarantees a cash value savings component for the policyholder.
If you’re considering this, read this in-depth guide to learn more about the benefits you would receive.
Whole Life Insurance FAQs
How Does It Work?
As mentioned above, it’s a permanent policy that helps policyholders build cash value over time. If the premiums remain within the policy’s expiry date or are valid in terms of time, the policy is active for the policyholder’s entire life. Put simply, the beneficiaries receive defined benefits upon the death of the insured.
What Does It Cover?
- The beneficiaries are entitled to receive a lump-sum, tax-free death benefit at the time of the policyholder’s passing.
- The policy has no use restrictions. A payout for a death benefit covers costs associated with the burial, estate planning, funeral, loan settlements, etc.
- It’s a living benefit that serves as a safe investment and savings account the policyholder or beneficiaries can access during their lifetime.
- The amount of cash value is “guaranteed.” That means that the insurer can pledge to uphold the lowest interest rate.
How is Eligibility Determined?
Eligibility is typically determined by factors including gender, age, medical history, employment information, and lifestyle.
How Much Does It Cost?
Whole life insurance premium rates are more expensive compared to other types. It may cost up to ten times more than a standard life insurance policy.
Premiums range from $40 to $400 monthly, but it ultimately depends on:
- Your profile
- Coverage amount
- The underwriting guidelines of the company
- Type of insurance policy
- Any rider you purchase
Moreover, whole life insurance premiums are based on:
- Age and gender
- Smoker status
- Medical history
What’s Better Whole Life or Term Life Insurance?
Whole life insurance offers the following benefits:
- Lifelong coverage
- Investing component
- Fixed premiums
- Potential to make dividends
- No expiry date
- Cash value withdrawals or loans
- Withdrawals and loans with no use restrictions
However, it does have some disadvantages:
- High premiums
- The slow return rate on investment
- High initial fees of commission
- It takes at least 15 years to build cash value
- Cash value doesn’t go to beneficiaries
- Withdrawals are sometimes taxable
All in all, whole life insurance can help you cover the needed expenses of your family when you pass away. But it is always better to learn its pros and cons to understand the benefits first.