What Is Whole Life Insurance?

Whole life is a permanent life insurance policy that provides coverage throughout your entire life. With a whole life insurance policy, premiums are usually a bit higher compared to a term life insurance plan, but whole life insurance may be more beneficial and more suitable depending on your goals and needs.

How whole life insurance works

Whole life insurance rates are determined by you gender, age, medical history, and your coverage goals. Once that has all been established, your premiums are then fixed for the entire life of the policy,and the death benefit is definite. With most insurance companies, you have the option in making your premium payments either monthly, quarterly, or biannually.

Cash Value

A major benefit with permanent whole life insurance, is the cash value a whole life policy generates as time goes by. Think of the cash value as an emergency fund. Part of your premium payments that you pay, are put into an account that accumulates over time, tax free. This can give you a possible tax advantage because your cash value can grow at a faster pace since there are not any fees being taken out. Once the cash value builds up high enough, you have the option of making partial withdrawals, you can borrow against the cash value, withdraw all the cash and surrender the policy, and you can even use it to put towards your premium payments.

Of course, there are some drawbacks to cash value life insurance. The first drawback is the length of time you must wait in order to have access to the cash value. On average, it takes between 2-5 years for the cash value of a whole life policy to become accessible to the policyholder. The exact length of time a person must wait, varies from insurance company to insurance company, and varies from policy to policy. The second drawback is if you make a withdrawal from the cash value and don’t repay it, the withdrawals will reduce the death benefit of the policy. Furthermore, if you decide to borrow or take out a loan against the cash value, you will have to repay the loan with interest. if you don’t, then the outstanding loan will subtract the outstanding loan amount from the death benefit.

Since permanent whole life insurance earns money that the policyholder can use whenever they need, whole life will always be more expensive compared to a term life policy. However, the premiums are fixed, it guarantees a fixed rate of return on the cash value, and it lasts the entire life of the insured policyholder that never expires at a specific time like term life insurance does.