When shopping for life insurance, the options between permanent, or whole life insurance and term life insurance can be confusing. You need to first decide where you are at in life, and what your long term goals with the insurance are. If it is something you want to keep for a long period of time, whole life insurance will probably be the way you want to go. With whole life insurance, it goes for the remainder of your life, whereas term insurance only goes for a set amount of time, and you have to renew it after that period ends if you wish to continue having life insurance.
Whole Life Vs. Term Life
Although whole life insurance has higher premiums than term insurance, the premiums do not go up over time like the premiums in term insurance do. Plus, part of the money you are paying goes to a cash account, and if you were to cancel the whole term insurance for some reason, you would receive the cash value of it. Otherwise, your family members would receive the cash value upon your death. Also, most of these policies automatically stop at age 100, so if you do live to 100, the insurance policy closes and you receive the cash value of it. It is a good idea to keep an eye on the cash value of your whole life insurance to see how quickly it is going up and how much is there.
With a whole life insurance plan, you can also borrow money against the cash value of the policy. If you do not have the money and interest paid back before you die, whatever you still owe will be taken out of the cash value before it is given to your family members. With a participating whole life insurance policy, you could get paid dividends if the return on the investment is good enough. These are used many times to reduce the premium. Non-participating policies have premiums that do not change throughout the life of the entire policy, so choosing the participating policy is something that is worth looking into when researching different whole life insurance policies.
Buying Whole Life Insurance
Before buying into whole life insurance, make sure you really assess where you are at in life and what you really need in an insurance policy. Because of the larger premiums, it could take ten years before you see a return on this policy, and although it is meant to be a lifetime policy, this may not meet your financial needs for the immediate or the future. This type of policy might be best for high earners who have saved as much as they can in other tax-deferred savings, since the cash on this type of policy isn’t taxed until it’s withdrawn. Whole life can also work for older people who have things like small businesses who want to leave something to relatives because the cash value of the policy could wind up being more than they could save on their own.
Whichever way you decide to go, make sure you sit down with a trusted and knowledgeable agent who is going to help steer you in the right direction for you.