What is Whole Life Insurance

Life insurance is a foundation of family upkeep and welfare even after death of the breadwinner. With life cover, the policy owner, anticipates the needs, upkeep and welfare of dependants and loved ones and takes care of these needs in advance before they occur. Taking out a life insurance policy is always a way of letting family and loved ones know you care enough for them to think of them and put their welfare first. One way of making this a reality is through whole life insurance policy cover. A Whole life insurance policy differs from term life insurance policy and slightly differs from permanent life insurance policy.

What is a Whole life Insurance and how does it work?

A Whole life insurance policy is the policy that covers you your entire life, not just for a period specified on the policy document, as is the case with term life insurance policy. With whole life insurance, the death benefit and the premiums that one should pay usually remain the same. As is the case with permanent life insurance policy, the whole life insurance policy also has the cash benefit for the policy owner. The policy builds cash value, which cash value is a return on a portion of one’s premiums which the insurer invests. This cash value is tax deferred until one borrows against it and withdraws it.

One’s choices with whole life insurance policies

The one important aspect of whole life insurance policy is that one has several choices within the policy. One can choose traditional whole life insurance benefit, an interest-sensitive whole life insurance or a single premium whole life insurance policy. These are the three choices available to one, with whole life insurance policy.

The traditional whole life insurance policy affords one a guaranteed minimum rate of return on his or her cash value portion. An interest – sensitive whole life insurance policy on the other hand, one can enjoy flexibility with his or her life insurance policy like increasing the death benefit without having to raise the premiums. All this will be dependant of course, on the economy and the rate of return on one’s cash value portion. With the single premium life insurance policy, one benefits if they have a large sum of money and desire to buy a policy upfront. This policy also accrues cash value and has the same tax deferred returns as the other ones.

Benefits of choosing whole life insurance policy over other life insurance policies

Whole life insurance policies hold greater benefits than other types of life insurance policies. Firstly, with whole life insurance policies, a portion of one’s premiums goes towards one’s cash value, which amount can easily pay off one’s policy after only a few years. Secondly, one’s premiums remain constant for the duration of the cover, unless one elects otherwise. One further enjoys lifelong coverage with the exception of further medical examinations, unless one amends or changes the whole life policy. Furthermore, one enjoys tax savings with whole life cover.

While there is an investment aspect in whole life cover; one is not encouraged to take whole life insurance policy as an investment package. The reason for this is that the rate of return on a whole life insurance policy is quite low when compared to other investments. It is therefore not an investment option for someone who is interested in investing. Even when coupled with the tax savings accrued, the return rate remains low. The investment aspect of whole life insurance should therefore not be the primary goal of taking out whole life insurance policy, but a subsidiary one or an added benefit to the death benefit.