Advantages of Whole Life Insurance
Posted on: March 4th, 2014 by admin
Although premium should be the least important consideration when purchasing life insurance, a frequent question often asked in search engines is "what is the average price of life insurance." The question can't be answered with a single number since variables such as age, health, face value, and type of insurance result in widely differing premiums. Many people are looking for the price of Term but actually hoping to purchase something they will never have to purchase again-which would be guaranteed whole life. That's the most worry free type of life insurance because it keeps the same premium and face value to age 100, after which the face value is continued to age 120 although you no longer have to pay premium.
One of the advantages of Whole Life Insurance is that it builds a cash value. Simply put, this is a benefit from the fact that you pay your life insurance premiums long before you die-or at least you hope so. The company has to invest that money while waiting for a claim against it. Since they are making money on your money, they put part of it into the policy in such a way that if you live to be 100, your cash value and your death benefit will be equal.
People who do not fully understand life insurance will also tell you that Whole Life Insurance is the most expensive. Actually, this is only partially true.
Those who try to promote Term life over whole life will glorify the deceptively low premium. It's true that a person in his or her 20s will be able to purchase a 100,000 Term life in a range between $15 and $30 a month, depending on the actual age, health conditions and types of riders that might be added. A whole life policy for the same person might be twice as much. However, what agents often neglect to explain is that in the long run, purchasing a Whole Life Policy at a young age will ultimately cost less than purchasing a 20 year term and trying to renew it in later years. The increases on a Term that has reached the initial period limit are phenomenal. A whole life purchased and kept to endowment will ultimately cost thousands of dollars less than either keeping a Term policy, or starting with a Term policy and purchasing a whole life when the initial term expires.
Whole life also creates an opportunity for additional retirement assets. If you decide after retirement that you really don't need that much life insurance, you can convert it to a fixed annuity and use the funds as you need them. Of course, you will be converting the cash value, not the face value, so you have to know how much cash your policy has actually accumulated.
Finally, whole life creates a source of emergency funds. While it is not advisable to borrow against your life insurance unless it is truly necessary, it is a funding source of last resort. You don't even need to pay back the loan itself although you will need to make sure that you pay the interest each year.
That being said, it makes sense to purchase whole life at the lowest possible premium. Premiums can appear to be quite different from one company to another.