Ian Maclean

 

Whole Life Insurance

With whole life insurance, the premium cost stays the same as long as the policy is in force. Even if you become gravely ill, the cost never changes. It’s guaranteed – as long as you pay your premiums. In fact, as the years go by, the policy actually gets cheaper. This is because of inflation, which erodes the value of money. By having a premium that never changes, you are essentially paying for the policy with “cheaper dollars.”

 

The cost of term life polices, on the other hand, is only guaranteed until the end of the term which is usually age 75 or 80 and the premiums increase  at the guaranteed rates as stated in the policy – usually 5, 10, or 20 years.

 

In whole life policies, the premiums paid go toward increasing the cash value and, if you are willing to pay more, increasing the death benefit by the use of dividends. Further, your cash value can be increased by dividends  based on the performance of the participating fund.

Your cash value and death benefit can never decrease in value unless you start withdrawing the cash value from the policy, or unless you stop paying your premiums. In this way, your whole life policy is similar  to a savings account: When you pay your premium, part of the money goes toward the insurance costs, while the rest goes towards increasing your cash value. This cash value has a guaranteed table which increases each year and is guaranteed by the insurance company, as is the death benefit. The guarantee is as strong as the company that holds your policy, so financial stability is a key element in choosing an insurance company.

 

The whole life policy pays a dividend. The key thing here, again, is that these dividends aren’t taxed, but are considered returns of premium. So, if at the end of the year the insurance company pays out $1,000 in dividends on your policy, you don’t pay taxes on that money. You can take that money in the form of a check, reinvest it in the cash value of the policy, or use the dollars to purchase additional, paid-up insurance. Those dollars will buy more life insurance, provide a bigger death benefit, and earn interest.

Whole life is a type of life insurance contract that provides insurance coverage of the contract holder for his or her entire life. Upon the inevitable death of the contract holder, the insurance payout is made to the contract’s beneficiaries. These policies also include a savings component, which accumulates a cash value. This cash value is one of the key elements of whole life insurance.

 

Are the higher premiums worth the cost? In a word, yes.

 

The first key advantage of whole life insurance is that the cost of the premiums paid to the policy never increases, as long as you make sure to pay the premiums and the policy doesn’t lapse. The reason why this is important is because with term policies, your rates rise over time. This is due to the changes in your health and age. As you get older, your chances of dying increase. Since the life insurance company takes on that risk, they increase the cost of premiums.