Whole Life Insurance

What is Whole Life Insurance?

Whole Life Insurance is an insurance policy that will last until the insured dies.  A Whole Life Insurance policy will not expire as long as premiums are continuously paid, and Whole Life Insurance policies will function for the entire lifetime of the insured.  The premium rate is guaranteed, and when the insured passes away, the policy beneficiary will be paid the death benefit.  Whole Life Insurance is generally the most expensive type of life insurance coverage, however there is a savings element that allows a cash value to grow within the policy.  The permanence of Whole Life Insurance is the primary difference compared to Term Life Insurance.  

How does Whole Life Insurance work?

Whole Life Insurance premiums are calculated based on age, health, and overall life expectancy.  Medical exams are required for some policies.  The insured will be questioned about their lifestyle, whether they smoke, hobbies, occupation, and family medical history.  The death benefit varies but can be as high as 20 times the insured’s yearly salary.  

Many factors affect premium rates beyond the individual insured.  Interest rates, state regulation, and the insurance company itself can affect the calculated premium.  “Breakpoint” coverage levels of $100,000, $250,000, $500,000, and $1,000,000 tend to provide customers with better rates.  

When the insured dies, the insurer will pay the full death benefit to the policy beneficiary.  This payment, which is generally not taxable, can be used for anything, such as income replacement, care for a disabled child or dependent, estate tax issues, or debt.  If the premiums are fully paid within the duration of the policy, the death benefit will be paid to the beneficiary.  The insured does not have to renew the policy as the premium rate is guaranteed.  

It is important to note that Whole Life Insurance retains value outside of the guaranteed death benefit as opposed to Term Life Insurance.  Whole Life Insurance policies allow policy owners to save cash within the policy.  Whole Life Insurance is considered to be much more expensive, which makes it ideal for high-income earners.  

The Benefits of Whole Life Insurance

As opposed to other kinds of life insurance policies, Whole Life Insurance lasts for the entirety of a policyholder’s life.  If premiums are paid in full each year, a Whole Life Insurance policy will pay the full death benefit to the policy beneficiary when the insured dies.  Not only does Whole Life Insurance have a death benefit, but there is also a savings element that can build additional cash.  This cash be reinvested into the policy or withdrawn to use on other expenses.  When borrowing from the cash value of a Whole Life Insurance policy, the money will not be required to be paid back.  In the event the insured passes away and has borrowed funds from the cash value, this amount will be deducted from the final paid death benefit.

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