Whole Life Insurance

If you’re like most, you’re probably searching for lifetime insurance protection and a way to invest in your family’s financial future.  A whole life insurance policy may be the ideal product for you.  Just as the name suggests, it’s insurance coverage that lasts for your lifetime.  Additionally, whole life insurance policies build cash value that you can borrow against in order to fund such things as household projects or your children’s education.

One of the four main types of permanent life insurance, whole life insurance policies provide coverage as you remain current in your premium payments or until you pass away.  Furthermore, the premium for a whole life insurance policy will remain fixed (the same) with each passing year.

Whole Life versus Term Insurance

Even though most people would rather not contemplate their own mortality, the financial research organization, known as LIMRA, found that approximately 40% of consumers make the decision to purchase life insurance due to a major life event.  Some of these include marriage, divorce, childbirth or adoption, purchasing a new home, or after experiencing the loss of a family member or friend.  In fact, LIMRA conducted the Life Insurance Ownership in Focus: U.S. Person-Level Trends survey in 2016 and found that more insured individuals own term life insurance rather than whole life insurance – 68% compared to 62%.

Strong opinions exist on which policy is better, not to mention that it can be challenging to determine which policy will best fit you and your family’s needs.

While a whole life insurance policy will cost more than term life, you are also paying towards an accumulated cash value within the policy.  This cash value accrues on a tax-deferred basis, and the policy generally earns a guaranteed rate of return.

As mentioned previously, whole life insurance is designed to last your lifetime, while term life only covers you for a specified period of time, such as 10, 20, or 30 years.  Should you pass during the time your term life insurance policy is active, your named beneficiaries will receive the face value amount of the policy.  Conversely, if you pass after your term policy has expired, your beneficiaries will receive nothing.

For instance, if you purchase a $250,000 20-year term life policy and die 15 years in, your beneficiaries would receive $250,000 tax-free.  However, if you die after 21 years and the policy has expired, they wouldn’t receive anything.

Keep in mind that if you wanted to renew that 20-year term life policy, you’ll pay a higher premium due to your advanced age.  Additionally, if you’re in poor health, you may not be eligible to purchase a term policy at all.

On the flip side, once you purchase a whole life insurance policy, you’re set for life!  A whole life insurance policy cannot expire and cannot be revoked, as long as you pay your premiums you have coverage.

Is a Medical Exam Required?

In many cases, “Yes.”  The medical exam required consists of recording your height, weight, and medical history.  A blood and/or urine test may also be required for specific medical conditions.  The results of the examination will either cause an increase in premium or refusal for coverage.

Important to note – if you are a smoker, you will pay more than a non-smoker, and blood tests will indicate the presence of nicotine.

If a medical condition prevents your eligibility for a whole life insurance policy, you may want to consider a guaranteed issue term life insurance policy, also known as “simplified issue” or “quick issue”.  You will pay a higher premium since a medical exam is not required, but there may be a waiting period before you are fully covered.

The Cash Value Component

Excellent for protection, whole life insurance consists of both a face value and cash value.  The face value of the policy is the amount your beneficiaries will receive once you pass.  Therefore, if you purchase a $500,000 policy, your beneficiaries will receive $500,000 once you pass.

The cash value of a whole life policy is the amount accumulated in the tax-deferred account.  There are also some types of whole life policies that pay dividends as well.

If you ever find yourself financially struggling, you can borrow against the accumulated cash value without facing credit checks.  The interest rate on this type of loan is typically low, and there are no taxes or penalties to pay either.

In the event that you do borrow against your policy without paying the amount back prior to your passing, the amount will be deducted from the death benefit that your beneficiary will receive.

Also, you are able to “surrender” a whole life insurance policy for its cash value in case of unexpected emergencies.

One more thing to note – often you are able to add an accelerated death benefit rider at little or no cost to your whole life policy.  This enables you to have access to your death benefit should you become chronically or terminally ill.