The Pros and Cons of Whole Life Insurance
Whole life insurance is a type of permanent life insurance, which remains in effect for the policyholder's entire life (as long as the premiums are paid). Whole life insurance has several pros and cons that make it the right choice for some, and the wrong choice for others. Learn more about the pros and cons of whole life insurance below.
The Pros of Whole Life Insurance
According to an article published by U.S. News, "Whole life insurance can allow for a buildup of cash value and if held long enough can increase the value and face amount. The increase in cash value and face amount is usually tied to premium payments, as well as dividends and interest paid on the cash value."
This growth is tax deferred, meaning a whole life insurance policy can double as an investment vehicle. This can be especially useful for those who are planning their estate.
Additionally, you may be able to secure a loan based upon your policy’s cash value. This means that your life insurance policy may one day serve as an important source of collateral.
One other pro revolves around premiums. You’ll likely find that whole life insurance policies offer fixed premiums. Some term life policies increase your premiums every year, or in fixed increments. But with whole life policies, you can predict what you’ll be paying year after year.
The Cons of Whole Life Insurance
So far we’ve looked at some of the benefits of whole life insurance policies, but whole life insurance has some disadvantages as well. In many cases, cost is the main disadvantage of whole life insurance.
For example, whole life insurance premiums can be as much as 10 times higher than term life premiums for the same level of coverage. Most whole life policies also have commissions and fees attached by the underwriter, which drives up the price of these types of policies.
The permanence of whole life insurance could also be a disadvantage, depending on your circumstance.
For instance, many people purchase life insurance when they get married or have children to ensure their surviving loved ones have a financial safety net. But later in life, people may find that the premiums are difficult to manage and they no longer require the level of coverage that they did while supporting a young family.
For people who decide that the cons of whole life insurance outweigh the pros, term life insurance may be a better fit.
A Note on Term Life Insurance
Unlike whole life insurance, which provides permanent coverage, term life insurance expires after a certain term (usually between five and 30 years). If the policyholder outlives the term of the policy, no death benefit is paid to their beneficiaries. Some people choose term life insurance because it is less expensive and less complicated than whole life insurance.
*Applications for insurance may be subject to acceptance by insurer. Rates and coverage amounts will depend upon the carrier selected.