Term Life, Whole Life, or Universal Life Insurance. Which Policy is Right for Me? [Part 2]
Life insurance is undoubtedly one of the most ubiquitous forms of insurance in the United States today. According to US News, a survey from the Life Insurance and Market Research Association, over 30 million households surveyed in the year 2012 reported that they needed life insurance. Of those surveyed, 80% reported positively on life insurance, stating that they found it to be necessary after the death of a loved one. However, the same survey reported that 12% of people were unsure of which type of life insurance to purchase, 10% were concerned that they would purchase the wrong form of life insurance, and 8% of people did not purchase any life insurance because they were uninformed of the details. There are three main types of life insurance: term life, whole life, and universal life. In this post, the second installment of a three-part series, we will provide a more detailed explanation of Whole Life Insurance and when it is best to use it.
What is Whole Life Insurance?
In contrast to term life insurance, whole life insurance is exactly what its name implies: it provides life insurance coverage over the insured’s lifetime. There are many types of whole life insurance but the most common are level premium whole life insurance, which, according to the Department of Financial Services, requires premium payments for the duration of the insured’s life. Any excess from premium payments will add up and be put towards the costs of premiums in the later years of the insured’s life, and will add cash value to the policy. While some premiums can be costly, they largely remain level throughout the insured’s life, as opposed to term life payments, which often drastically increase in cost as the insured grows older and the probability of death increases.
Why Should You Use Whole Life Insurance?
Term life insurance can be beneficial for younger households who only need temporary coverage, but whole life insurance is a far better long-term solution. Cancelling your whole life insurance policy after just a few years can be very costly while maintaining it for many years can have financial benefits. According to Consumer Reports, the earliest that you can quit your policy without suffering from financial losses is sixteen years. If you maintain your policy for at least twenty years, your returns will greatly increase, and surrender charges frequently disappear after this amount of time, which would enable you to cash out of your policy.
Additionally, whole life insurance provides a much greater death benefit than term life; in many term life insurance policies the coverage grows far more expensive past age 70 and as death grows more likely (though with most whole life insurance policies, the death benefit ends between age 100 and 121). Though whole life insurance premiums can be far more costly than term life payments, the excess premium will go towards guaranteed savings and will increase the plan’s cash value. As long as premiums are paid, the plan’s beneficiaries will always receive the death benefit regardless of the deceased’s age.
