What Is Whole Life Insurance?
Whole life insurance is a life insurance policy that lasts your whole life and includes a built-in saving component.
Danielle R.
Published November 29th, 2020
Whole life insurance provides coverage for your entire life, as long as the you are up-to-date with the premium payments. It guarantees the payment of a stated death benefit if the covered person dies during the specified term.
Key Takeaways
- Whole life insurance provides coverage for your whole life, it never expires
- Whole life insurance premiums are fixed, and depend on your gender, age and health
- It also builds cash value that you can access various ways, even if you decide to surrender or cancel the coverage.
- The death benefit is paid out to your designated beneficiaries when you die, alongside the cash value, minus any loans you have taken out against the policy
What are the typical features of a whole life policy?
Whole life insurance doesn’t expire: as long as you continue to pay the fixed premiums on time, the coverage lasts your “whole life.”
Another key difference with term life insurance is that the premiums you pay into your policy will eventually gain cash value, as the savings component is invested and grows over time. For example, if you purchased a whole life policy with a $100,000 death benefit and the policy had accrued $30,000 cash value by the time of your death, your beneficiary – generally a spouse, child, or close relative – would receive $130,000.
In addition, it is possible for the policyholder to access some of the cash while alive, to pay the policy premiums, add to retirement income, create an investment portfolio, or to borrow against it.
In some cases, you can choose to pay the total cost of premiums in a limited number of years. This is call limited pay whole life insurance: you will pay premiums for the first ten or twenty years of the policy, but will be covered your entire life.
No matter what amount of death benefit you choose, the face value of your policy will be paid out to the beneficiary, alongside the cash value, minus any loans you have taken out against the policy. Be sure to remember though that these loans often charge interest and will not gain in value inside the policy once the funds are taken out. This means you could lose out on recouping those extra benefits in the case of your death.
How much does whole life insurance costs?
For most people, whole life insurance is fantastic option. Since it lasts your entire life, you never have to worry about expiration or renewals, like you would with a term policy. The earlier you purchase a whole life policy, the cheaper the premiums are and the more time the policy can collect cash value.
However, these policies are not for everyone. While cash value is a major benefit to a whole life policy, that feature can eventually become costly. If you need a significant amount of life insurance, then a whole life policy can be cost-prohibitive as compared to a term policy of similar value.
| Age at purchase | Policy amount |
Whole Life premiums |
30-year Term Life premiums |
|---|---|---|---|
|
Female, 30 |
$500K |
$3,195 |
$302 |
|
Male, 30 |
$500K |
$3,600 |
$362 |
Annual premiums using an average of three lowest prices available for individual in excellent health. Source: nerdwallet.com
For the same policy amount, whole life insurance premiums are significantly higher than other types of life insurance. When choosing an insurance for your family, it is important to understand what you want to accomplish by leaving the money to your loved ones, and determine how much insurance you need.
How to buy whole life insurance?
Buying whole life insurance does not have to be complicated.
After you choose a policy and pay a premium down payment, you will have to submit a questionnaire on your health history and lifestyle choices to complete the underwriting and application process. After approval, you get to enjoy the peace of mind that comes from making the right decision for yourself and loved ones!
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