Life is all about being prepared for the unexpected. Life insurance is important for those individuals that want to ensure their family is protected and monetarily stable in the event of their death. You don’t know when life insurance will be needed, so it is essential that most people are proactive and plan ahead for the unexpected by choosing a life insurance policy. There are a number of different types of life insurance that you can choose from, but whole life insurance is seen as the highest quality and optimal coverage. Before you choose a whole life insurance policy, it is important that you are fully aware of all the pros and cons that are associated with a life insurance policy of this type.
Pros of Whole Life Insurance
1. No Increasing Premiums
The biggest advantage to choosing whole life insurance involves the ability to avoid increasing premiums altogether. The premium to your policy always stays the same as long as you do not let the policy lapse with unpaid premiums. As long as you have your whole life insurance policy the cost stays exactly the same. Even in the event of sickness or increasing age, you do not have to worry about paying higher premiums for life insurance coverage. This is a benefit that is not possible with term life insurance.
2. Cash Value, Taxes, and Dividends
When you pay premiums on your whole life insurance policy, some of that goes toward increasing the cash value of the policy. The cash value also increases in similar fashion to a traditional savings account. The cash value, tax and dividend benefits that are obtainable with a whole life insurance policy are unique and do not extend to term life insurance policies.
Cons of Whole Life Insurance
1. Cash Value Does Not Build Right Away
One con associated with whole life insurance is the inability for cash value to begin growing right away. The cash value of the policy does not actually begin to grow until you have been paying premiums for the policy for at least 2 to 3 years.
2. Much More Expensive
Whole life insurance does offer premiums that do not rise, but you are paying much higher premiums along the way. Whole life insurance policies can often be 4 times more expensive than traditional term life insurance premiums.
3. Surrender Period
Most whole life insurance policies come with a surrender period, which is a specified length of time that the money must stay with the insurance company before it can be withdrawn.
What Is Whole Life Insurance?
Whole life insurance is a contract that offers insurance coverage to the holder of the policy for his or her entire life. Whenever the contract holder dies, the beneficiaries of the contract holder are the ones who receive the payout of the whole life insurance policy. This type of insurance policy is unique because it has a number of features including a savings component that hold an increasing cash value. This cash value is an aspect of whole life insurance that many people find to be most appealing.
How is Whole Life Insurance Similar to Term Life Insurance?
Term life insurance is another type of life insurance policy that is extremely common. It is important to note that not everything is different between the two different types of life insurance. Beneficiaries are a similarity that the two different policies have in common. The beneficiaries are the ones that receive the payout in the event of death to the policy holder. After beneficiaries, this is where the similarities between the two different types of life insurance tend to end.
Differences Between Whole Life Insurance and Term Life Insurance
The differences between whole life insurance and term life insurance are pretty glaring. The most obvious difference between the two is the cost. It is important to realize that whole life insurance premiums are often about 4 times more expensive than the premiums for term life insurance. This is especially true at the onset of the insurance policy. Another difference is the length of the policy. Whole life insurance lasts for the entire life of the policy holder, but term life insurance only provides coverage for a specific period of time.
Most term life insurance policies span from 10 to 20 years in length. Term life insurance policies for young people in good health can have very low premiums. After the term is up, it is possible to renew the policy and then pay a much higher premium for coverage as a result. With whole life insurance you never have to worry about extending your coverage or increasing premiums.