Whole Life Insurance For Parents Explained
Unlike term life insurance, whole life insurance is a form of insurance that you keep for the duration of your life, and pay into each year. There isn't a time at which it "expires".
Whole life insurance policies became popular when a number of buyers complained that they could pay for many years into a term life insurance policy and never get any of that money back.
Whole life insurance combines a term type of policy with an investment component that may or may not be useful to parents. The investment component could be in anything from stocks, to bonds, to a money-market account. As the cash value on your whole life insurance policy builds, you would even be able to borrow against it.
However, there are some drawbacks to choosing a whole life insurance policy. First, it's definitely more expensive. You're paying for both a life insurance policy and a form of investment that is similar to a form of retirement.
In contrast term life insurance is very affordable for people who enjoy good health until around age 50. Keep in mind, however, that many life insurance companies won't sell a term policy to anyone over the age of 65, so if you're an older parent looking to buy coverage then whole life insurance might be your only option.
Another thing to keep in mind with whole life insurance is that in most cases it doesn't pay to invest in it unless you plan on keeping the policy for at least 20 years. This is because cashing the policy out before then is more likely to result in lost money, based on fees and premiums.
So if you're an older parent with a new baby or young child to consider, whole life insurance might be a good fit for you.
Of course another option could be to get a renewable term life insurance policy and invest the difference in costs between that and a whole life policy in a money market account that pays off well.
But again, in many cases keeping a whole life insurance policy for more than 20 years can be just as successful if not more so than other forms of investing, so think carefully about how long you will need coverage before choosing your insurance policy.
And finally, don't forget the fees. Many whole life insurance policies come with fees attached. Make sure that you are aware of exactly how much you're paying, what portion is going into the life insurance piece of your policy, and what portion is going into the investment side of the policy.