Whole Life Insurance
As its name implies, whole life insurance policies remain in effect for the entire life of the insured. This is in contrast to term life insurance policies, which only remain in effect for a certain period of time and often expire without any benefits having been paid out. With whole life insurance, you are covered as long as you continue to make timely premium payments. Also, as opposed to term life, whole life insurance builds up a cash value and can actually be used as an investment vehicle. Whole life insurance offers a combination of death benefits and a “savings account” that you will be able to borrow against or get back by cashing in the policy.
Of course, with the added benefits, whole life insurance also tends to be more expensive than term life. However, whole life, also known as permanent life insurance, keeps the same premium amount over the years. Typically, you will pay a higher premium in the earlier years of a whole life policy so that the additional premium amount can be invested and grow over the years. With a whole life policy, if you do cash in during your life the gains are tax-deferred. If you happen to pass away, the proceeds are typically tax-free to your beneficiary.
Usually, if you plan to keep a policy for 20 years or longer, whole life insurance is the best option to take. Whether you decide to take whole life insurance or term, be sure to properly assess your life insurance needs to ensure that your family will be adequately provided for should you die. Instead of blindly assuming that either a whole life or a term life policy will be sufficient, it is a highly important financial decision to make and should be treated as such.
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