Understanding Whole Life Insurance (Learn the pros and cons of whole life insurance)

A whole life insurance policy is probably one of the best insurance coverage out there, but despite it being advertised by so many insurance companies out there, only a few people actually understand the whole idea behind the insurance coverage.

If you're wondering what Whole Life Insurance is then read this guide to the end as we explain everything you need to know and understand about insurance coverage.

This guide is probably going to be the most detailed you can ever find on the internet. At Insurancedew.com, we cover articles under life insurance, home insurance, vehicle insurance, and other insurance-related fields. Our aim is to ensure we provide our readers the most simplified explanation of insurance using a layman's explanation.

You don't need to be a degree or master's holder in finance and insurance before you can understand the insurance market and its terms.

With all that said, let us dive into the topic of discussion.

Whole Life insurance is what most people call permanent life insurance. Whole life insurance coverage has been the most purchased type of insurance policy in the United States. 

According To Investopedia and The American Council of Life Insurers stated that about 60% of all the people who buy insurance policies mostly go for the whole life insurance or permanent insurance policy despite all the different types of insurance policies out there. With permanent life insurance on the market, traditional whole life insurance has been the most popular among all.

Whole life insurance is known to cover all the death benefits the heir to the insurance holder can get. This benefit can be Cash Value Component that can be accessed for other expenses. With the high advantage this insurance policy is having, it makes it more expensive than term life insurance.

I believe you must have started sensing how interesting it will be to have insurance coverage that lasts for a lifetime and still gives your heirs the benefits they deserve. With this, anyone will love to jump in and grab one. However, despite it being as good an offer as it sounds, it comes with its own pros and cons which we're going to discuss shortly.

But before we dive into the advantages and disadvantages of this insurance coverage, let us look at some major key things you need to note down before thinking of taking a whole life insurance policy.

Below are some major key things to note before thinking of going for a whole life insurance coverage. These things will help you a lot when it comes to decision-making.

Whole life insurance is more of a permanent type of life insurance policy that covers you for a lifetime until you breathe your last breath.

The whole life insurance is more expensive than other insurance policies out there such as the term life insurance policy. This is because the term life insurance policy is meant to last for a certain number of years, and after that, it will expire.

The whole life insurance comes with an amazing package which is known as the Cash value. The Cash Value is more of a saving component that allows you to build up cash as time passes by. 

With all that said, let us go deep into what whole life insurance is all about.

Also Read: How To Get Cash Value From Your Life Insurance Policy

Also Read: What Does Burial Insurance Means? (Detailed Explanation Of Burial Insurance)

What Is Whole Life Insurance? ( Whole Life Insurance Explained)

As the name implies, the whole life insurance policy is a type of insurance that covers the holder of the coverage for his entire life. This type of insurance is just more of the opposite of the term life insurance policy that is designed to cover the holder for a particular period ranging from 10-30 years depending on the terms of the contract. As a holder of the term insurance policy, you can upgrade to your whole life if you wish to and still enjoy some amazing benefits.

A lot of people love to compare the term and whole life insurance because they're the most popular life insurance policies out there. One of the key differences between the both of them is the cost of getting insurance coverage. The term life insurance is usually lower when compared to a whole life insurance policy. This means that you can buy a term life insurance policy with a much larger death benefit for the same amount of money. So while 60% of new individual life insurance policies are permanent life insurance, they represent just 28% of the total face amount of all new policies.

Another thing that makes the whole life insurance policy more expensive than term insurance is the saving component of whole life insurance which comes with a cash value. This cash value is Part of your fixed annual premium that goes to buy insurance, much like a term policy, while another part goes into a reserve account, which will earn interest and grow in value.

If for any reason, you're facing some financial difficulty, you can meet your insurer to get a loan against your policy cash value or even withdraw the money if you decide to give up or surrender your policy. A term policy, on the other hand, has no cash value but simply pays a benefit if you die within the set term.

Whole Life Insurance Compared To Other Permanent Life Insurance Policies

Out there in the insurance industry, there are three(3) major types of permanent insurance. All of this insurance comes with its own insurance and savings components.

Below are the three (3) major types of permanent insurance.

• Universal Life Policy
• Variable Life Policy
• Variable-Universal Life

Universal Life Policy is a type of policy that gives you the exclusive option of raising or lowering your death benefit which in the end will affect the premiums you paid for. As a policyholder, you might decide to buy a Universal Life Policy with a relatively low death benefit at the outset. This can be increased as time goes on or probably when the number of your family starts growing or your income increases. By the time your kids are grown and financially okay to take care of themselves, you can lower it again.

Variable Life Policy is another great policy that gives you control over how your cash value is being invested. The policy allows you to get access to a portfolio of mutual funds from which you can choose. However, with a whole life policy, the insurance company itself makes those investment decisions.) Both the cash value of your policy and your policy’s death benefit can fluctuate based on how well your investments perform.

Variable-Universal Life is more of an advanced insurance policy. Some experts regard it as a hybrid or a universal and variable policy. With this insurance policy, you can adjust your death benefit while also choosing how your cash value is invested just like the variable policy.

To ascertain if whole life insurance is a great option or not all falls downs to your income and financial state.

With this said, let us look at some of the Pros and Cons of Whole Life Insurance

Pros and Cons Of Whole Life Insurance Policy

Despite the fact that whole life insurance sounds like a good option, there are some pros and cons that comes with getting the whole life insurance coverage.

Below are the pros and cons of a whole life insurance policy

Pros Of Whole Life Insurance

• Permanency
• Predictability
• Tax Breaks
• Potential loan collateral

Cons Of Whole Life Insurance

• Higher cost
• Smaller death benefit
• Lack of investment control

Conclusion

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