Whole life insurance, also called permanent life insurance, not only pays your survivors a benefit when you die, it can also pay dividends while you are alive. The guaranteed cash value of some whole life insurance policies may allow you to accumulate cash, which can be obtained by surrendering the policy or making a loan against the policy. A whole life policy can be a good choice if you want the security of lifelong insurance without having to worry about increasing premium payments as you get older.
Misconceptions
All life insurance policies are not the same. While whole life insurance never expires, another common type of life insurance called term life insurance only covers you for a certain period of time, such as 15 or 30 years.
Types
The premiums and value of your policy never change if you have a nonparticipating whole life insurance. While this type of policy may offer lower premiums than other types of whole life policies, it does not pay dividends. Dividends are available if you choose a participating whole life insurance policy. Limited payment whole life insurance provides the same lifetime protection as the other whole life insurance policies, but payments are made over a shorter time period. Limited payments may be made over 20 or 30 years, but the life insurance policy remains in effect for the rest of your life. If you choose single premium whole life insurance, you may pay one large premium payment when you purchase the policy and are then covered for the rest of your life. Level premium whole life insurance requires payments as long as you are living. Extra premiums are invested by your insurance company, providing a cash value for your life insurance policy. If you choose an indeterminate premium whole life insurance policy, the amount of your premium payments will vary based on expenses, earnings and mortality estimates, although the premium will never exceed a pre-determined limit.
Benefits
In addition to offering dividend payments and cash value benefits, whole life insurance policies offer several other benefits that term life insurance policies do not. If you wish to renew your term life insurance policy at the end of the term, you may be forced to pay considerably higher premiums, particularly if you have developed health problems since you first obtained your policy. Whole life insurance premiums are set at the time you purchase your policy and never change. The cash value of your whole life insurance policy can be used to pay premiums, according to the Insurance Information Institute. This is a particularly valuable feature should you happen to encounter financial difficulties years after taking out your policy.
Considerations
While you may pay higher premiums for a whole life insurance policy than for a term life insurance policy, your premium will be lower than the combined premiums you would pay to continually renew a term life insurance policy, according to the New York State Insurance Department. Whole life insurance may be a better choice than term life insurance if you have a family member who will always depend on your financial support, such as a disabled child.
Warning
Obtaining a loan from your whole life insurance policy may seem like an easy way to get money, but it does have certain potential downfalls. Interest is charged on the amount you borrow and any money you still owe at your death is deducted from the survivor's benefits.
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