Life insurance offers invaluable financial security for your loved ones following your death. But if you’ve started searching for life insurance policies, you might run into trouble choosing between the various types of life insurance programs, including term life and whole life insurance.
While term life insurance can offer a great short-term solution for individuals looking for immediate coverage, whole life typically provides more flexibility and long-term security. Explore the pros and cons of whole life insurance to better understand whether or not this is the right option for your needs.
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What Is Whole Life Insurance?
Whole life insurance provides coverage for your entire life, whereas term life insurance only offers coverage for a fixed period — usually 10, 20, or 30 years. With whole life insurance, as long as you continue to pay your premiums, your coverage will remain.
Whole life insurance also helps policyholders save money, as they can build cash value over time. A portion of your premiums goes into a separate account which will earn interest. While variable life policies let policyholders choose how their cash value is invested, whole life policies place this responsibility on the insurance provider.
You can access this cash value at any time or take out a loan against your cash value. So, on top of your death benefit, whole life insurance policies give you access to this cash value when you need it.
Unlike universal life policies, which allow policyholders to adjust premiums and death benefits as needed, whole life policies have fixed payments and death benefits.
Advantages of Whole Life Insurance
Whole life insurance offers several advantages that may make it a better option than term life insurance for some individuals.
Consider these benefits to determine if whole life insurance is right for you:
Term life insurance only offers temporary coverage. If you decide to continue your coverage after your term ends, you’ll likely have to renew it at a higher cost due to your older age and new health issues.
Whole life insurance provides permanent coverage for your entire life, ensuring that your loved ones are financially protected at any point. This makes it a great option for those that can afford the more expensive premiums and would prefer a long-term plan.
While whole life policies are typically more expensive than term policies, they offer predictability that other policies may not be able to match.
With whole life insurance, your premiums and death benefit remain the same for the life of your policy. This means your policy won’t be subject to market variability, and you don’t have to worry about your payments increasing in the future. This makes whole life ideal for those that value predictability and reduced investment risk.
By building cash value over time, whole life insurance policies provide additional value to policyholders that term life policies aren’t able to match. While your policy’s cash value won’t be a replacement for a retirement fund, it provides access to additional capital that you might find useful as you get older.
The cash value accumulated by your whole life policy is tax-deferred. If you were to invest this money in a standard non-retirement account, you would have to pay interest on the dividends and interest that it earns. Death benefits are also typically tax-free, so your beneficiaries will receive the entire amount after you pass.
Disadvantages of Whole Life Insurance
While whole life insurance offers several benefits, there are a few disadvantages that may make other types of life insurance better for certain individuals:
Whole life insurance policies can cost as much as five to 15 times more than term life insurance policies. While part of this is due to the portion of your premium that goes towards your cash value account, whole life policies are more expensive because of the higher risk insurers take on as you grow older.
Fixed Death Benefits
With whole life insurance, your death benefit remains the same throughout the life of your policy. Universal life insurance policies offer more flexibility as they allow policyholders to adjust their death benefits and premiums as they deem necessary.
No Control Over Cash Value Investment
Whole life policies don’t let policyholders choose where the money from their cash value account is invested. However, variable life policies let policyholders choose from a selection of mutual funds. Capable investors might be able to build more value by purchasing a cheaper form of life insurance and investing the difference on their own.
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Whole life insurance offers several pros and cons. Depending on your age, health, and financial capabilities, whole life insurance may be the right option for you.
At KSA Insurance, we work with individuals in South Carolina and across the southeastern United States to help them find affordable life insurance that meets their needs and secures their family’s future.
Contact KSA Insurance today to request a quote and learn more about our life insurance products.