Whole life insurance is a permanent life insurance policy with two components: your insurance and your cash value. Your insurance allows you to get your death benefits when you are no more. The cash value is a portion of your premium which you can withdraw or borrow for certain reason. Left untouched, your cash value builds up with interest, giving you the advantage of taking out more loan in the future.
But the interest on your cash value is less compared to that of other permanent life insurance policies like variable life insurance. This is because your insurer usually invests this cash value in safe investment vehicles like saving accounts. Regardless, your death benefit is fixed within the duration of a whole life insurance policy.
How whole life insurance works
As a policyholder of whole life insurance, you are expected to pay a fixed amount of premium until you die to get your death benefits. That’s why a whole life insurance policy is more expensive than a term life insurance policy. Most times, the monthly or yearly premium your insurer will ask you to pay depends on your age, health status, health history, and life expectancy. So, if you are younger, expect that you will more than the elderly. And if you have cancer and other health issues, you are likely to pay more premium than someone who is mentally and physically healthy. But if you don’t like the idea of paying premiums throughout your life, then maybe you should consider term life insurance or seek advice from your financial advisor.
Who needs whole life insurance policy
You need a whole life insurance if you have children, family members, and relatives who will need a lot of financial support when you are dead. You also need this type of insurance policy if are uncertain of what the future holds for your kids. Remember, your death benefit can be used to pay for your children’s tuition fees, your mortgage costs, and your family basic needs.