Whole Life Insurance Pros and Cons
Before discussing in detail whole life insurance pros and cons, let us explain what is whole life insurance. Whole life insurance is permanent life insurance which pays a death benefit and builds cash value over time with premiums. Before buying life insurance, consumers should compare whole life insurance pros and cons to determine which policy offers the best life insurance for their family. For example, there are two other types of life insurance – universal life insurance which is permanent like whole life but builds cash value by investing in the stock market, and term life insurance which provides temporary coverage, expiring after a period of time and not building any cash value.
When you compare different life insurance policies, you will realize that whole life insurance has its own advantages and disadvantages, but which life insurance you choose to buy depends on what your individual needs are.
Permanent Life Insurance – Pro
Because whole life insurance is permanent it can never be canceled due to the insured person’s age or health. The death benefits and premiums are fixed for your life time, and applicants who buy a whole life policy at a young, healthy age often benefit the most with cheap life insurance rates. Universal life insurance is also permanent, but the equity in the policy is tied to stocks and bonds, and should it reach zero due to investment losses or fluctuations, the policy may lapse. Whole life guarantees payment of the face value death benefit, but the death benefit of universal life insurance is tied to the policy’s cash equity. Term life insurance is only temporary, and must be renewed after each term period or else it expires. Applying for term life insurance again at an older age will require another medical exam, and usually results in higher term life insurance rates due to increased risk.
Therefore, whole life insurance offers a safer savings account with low risk and guaranteed returns, but universal life insurance provides risk with upside reward, potentially yielding huge returns. Whole vs. universal life insurance depends on your comfort with risk and potential fluctuations in your investment.
Guaranteed Cash Value – Pro
Whole life insurance has a savings feature which pays a guaranteed rate of interest. Universal life insurance policies have an investment feature which is subject to the ups and downs of the financial markets. Both types of life insurance divert part of your life insurance rates to equity (cash value) in the policy, but the equity in a whole life policy is secure and guaranteed by a minimum return. The cash value in universal life insurance policies has a higher potential for gain and a greater risk for loss than whole life. Term life insurance has no cash equity and expires at the end of the pre-set term period.
Fixed Whole Life Insurance Rates – Pros and Cons
A 20 year old man applying for life insurance will find there is a substantial difference in the cost of whole life insurance vs. term life insurance. Whole life insurance is initially more expensive than term life. The premiums of whole life coverage remain the same for the insured person’s lifetime, but term life insurance rates increase each time a policy is renewed or replaced. The premiums of universal life insurance may increase over time, although unlike term life, increases in universal life premiums are not tied to the age of the insured person.
However, the disadvantage of whole life insurance is that rates aren’t the cheapest. Term life insurance is the most affordable type of life insurance for young family’s, and because whole life insurance guarantees a payout by the life insurance company, either through a death benefit or the cash value, whole life insurance rates are typically not as cheap as term life.
Whole Life Insurance As An Investment – Con
Since the rate of interest on the equity in whole life policies is guaranteed, the return on the investment in the policy may not keep pace with the rate of inflation, which could technically result in a loss on investment. Because universal life policies are invested in financial markets, the returns may be greater on the cash value in these policies. Although whole life insurance as an investment offers greater security to policyholders, whole life policies may not be the most profitable long term investment available.
Policy Terms Are Set For Life – Con
During a person’s lifetime, their family’s income, debts, and need for life insurance changes. Individuals, parents, or seniors with young families to protect need more coverage than retirees who may just want to cover final expenses, including a funeral and medical bills. Once the terms of a whole life insurance policy contract are set, they cannot be changed. Since term life policies expire at the end of the period, usually 10, 15, 20, 25, or 30 years, new policy benefits can be chosen to meet changing life insurance needs. Whole life insurance can have consumers paying for insurance that is either too little or too much protection for their current needs.
Whole Life Insurance Quotes
The returns earned on investment in both universal and whole life insurance policies are tax deferred and the death benefits of all life insurance policies are tax exempt. The tax advantages should be considered when using whole life insurance in financial planning. Universal and term life insurance have cheaper rates than whole life insurance, making it unaffordable for some individuals and family’s. Those seeking a secure investment with life insurance protection will find whole life insurance is a good choice.
When looking to buy whole life insurance, consumers are recommended to keep in mind whole life insurance pros and cons as they get free, instant life insurance quotes to compare rates and insurance companies. By getting whole life insurance quotes online, consumers are able to find the best life insurance rates, policies, and coverage options. Enter your zip code to begin a whole life insurance quote now and make sure you end up purchasing affordable life insurance for your family in the future.
