Whole life insurance is one of the most misunderstood financial life insurance products available on the market today. If you are in the process of shopping for life insurance, it is important to understand the major differences between whole life and term life insurance. While each carries the same death benefit, there are advantages and disadvantages to each product. Read on so that you can finally end your confusion and gain an understanding of whole life insurance.
Examining the Facts Surrounding Whole Life Insurance
Whole life insurance is a permanent plan. This means that the policy premiums will remain level for the life of the policy and that the policy will not expire within a specified period of time. While the premiums are initially higher than term life insurance plans, this type of contract has an investment component built into it. As you pay your premiums, a portion will be applied to the premiums and the other portion will begin to earn cash values. The values that you earn can later be used as dividends to pay your premiums, or cad be withdrawn or borrowed from the policy.
Like a term life policy, the death benefits of whole life contracts remain level over time. If you pass away, your beneficiary will receive the death benefit along with any cash values that have not been borrowed or withdrawn from the contract. If the policy earns dividends, which are not guaranteed, they can be used to pay premiums or disbursed in the form of a check annually.
Another feature of the whole life policy that you will need to consider when purchasing is that dividends can be used to reduce your premiums over time. By requesting that your dividends be converted into a payment of your premiums, you can keep your premiums lower as you age. This is a features that you cannot use to your benefit with a term life plan.
The Pros and Cons of Whole Life
Whole life is not for everyone. Opponents of whole life insurance believe that life insurance should not involve an investment components, and proponents believe that the investment component is beneficial to policyholders because of the guaranteed interest rates earned on cash values. Proponents also believe that it is in the benefit of the insured to purchase a contract that will not expire at a stated age.
Whole life insurance is a complex contract that many do not fully understand. Before you rule this type of insurance out, take the time to compare premiums, riders, and policy features. By doing this, you can build the best insurance portfolio to protect and provide for your family.