WHOLE LIFE INSURANCE: Advantages and Disadvantages Author:    Posted under: Life InsuranceLife Insurance questions answeredLife Insurance Types


What is Whole Life Insurance?

Whole Life Insurance is a kind of insurance that remains active for the duration of the insured party’s lifetime and beneficiaries are paid after the policyholder’s demise. Needless to say, it covers the policyholder’s entire life as long as premiums are paid. Premiums are fixed and do not change for the duration of the life of the policy.

A whole life insurance policy also builds cash value. Cash value is a portion of the premium that policyholders pay that the insurance company, in turn, invests. As long as the cash value is with the insurance company it is tax-deferred. The policyholder also has an option to withdraw against it. Although, borrowing from the cash value will reduce the death benefit.

Since the policy covers death benefits and investments, the cash value of the policy increases or grows over time. Dividends are paid to the policyholder.

Another benefit of Whole Life Insurance is that the cash value of the policy can actually pay off the entire policy after a few years leaving the policyholder worry-free.

Types of Whole Life Insurance

There are three basic types of Whole Life Insurance. They are:

  • Level Premium Insurance: A type of whole life insurance wherein premiums paid remain the same from the time the policy was enforced until the death of the policyholder.
  • Limited Pay Insurance: Insurance premiums are paid for a specific period of time or duration. This is normally agreed upon signing of the policy.
  • Graded Premiums: At the onset of the policy, policyholders pay a minimum amount on the premium increasing it as the years go by. This helps the policyholder who does not have sufficient funds during the initial year of purchase.

Advantages of Whole Life Insurance

Looking closely at Whole Life Insurance, I think that it is one of best options out there. I say this because of the following advantages the plan offers:

  • The premium cost does not increase regardless of how long the policy is in force.
  • The policy does not change despite medical conditions.
  • The policy lasts for the duration of the policyholder’s lifetime- that means lifetime coverage unless otherwise revoked or until premiums are paid.
  • Part of the premium is invested as cash value.
  • The insurance provider pays dividends to the policyholder.
  • Dividends can be used to pay off the entire policy.
  • Cash value can be withdrawn.
  • Savings are tax-deferred.
  • Option to cash out the entire policy if insured party is old and no longer require death benefit.

Disadvantages of Whole Life Insurance

If there are advantages, disadvantages are just around the corner. The disadvantages of Whole Life Insurance are:

  • Premiums are paid monthly unless the policyholder dies. It’s an entire life of paying premiums.
  • Fixed premiums are more costly and may limit the coverage.
  • Cash value withdrawn will be deducted from the total death benefit.
  • When policy is cancelled before the policyholder dies, there would be loss in terms of money and premium paid.

Looking at the bigger picture, Whole Life Policy has more advantages than disadvantages. But it does not mean that it is the best choice for you. As always, review all the benefits and the down side of each policy you consider buying before making your decision.

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