Understanding The Benefits Of A Whole Life Insurance Policy

A lot of individuals fear buying life insurance because they don’t understand how these insurance options work.

A whole life (permanent) insurance policy works as an investment vehicle where you are the investment. Most of these programs provide a fixed premium for the life of the policy that is based on the death benefit. When the policy holder passes away, the insurance carrier pays out the monetary benefit to the beneficiary. Whole life policies also have a guaranteed cash value. Insurance companies will let you borrow against the policy or even cash out the policy based on your life events. Having this kind of flexibility are the fundamental factors why whole life insurance is an attractive investment option for many people. It is also important to think about the tax implications that the beneficiary may have to deduct from the proceeds. Normally, the beneficiary of a whole life policy escapes from having to pay income tax on the benefit. Individuals with long-range financial goals may benefit most from a whole life policy.

On the other hand, term life (temporary) insurance is just the opposite of whole life in that it is a temporary policy based on the length or term of the policy. As a result, it is the least expensive form of life insurance. The premiums are based on two factors which are the period of time you want to cover and your age at the time you take out or renew your policy. Typical policy terms are between 5 and 30 years . Unlike whole life where the premiums are fixed, the premiums for term life policies can be increased annually. At the end of the policy term your insurance provider may allow you to renew the policy for a new specified period or allow you to convert it into a whole life policy. Generally, term life policies have no cash value and you cannot borrow against them. Therefore, this type of policy is best suited for those individuals with short-range financial goals.

There are instances when you may want to have the ultimate protection and flexibility by having both a whole life and a term life policy. Individuals often have a term life policy to provide an additional death benefit at an affordable price. For example, you buy a $250,000 whole life policy with your spouse as beneficiary. You have kids and decide that you want to increase your death benefit to $400,000 with your children as beneficiary. Purchasing a term life policy for $150,000 for a specified term could be less costly than increasing your whole life policy.

Sadly, most individuals today do not have any life insurance coverage. Those that do often have inadequate protection against the uncertainties of life. Depending upon your age and other factors, your premiums could be as low as a daily cup of coffee. That’s very cheap considering the level of protection that life insurance affords. You can easily get an online life insurance quote and compare the cost and benefits from many providers at the same time.

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