Whole Life Insurance
Whole Life provides coverage for an individual's whole life, rather than a specified term. Whole life insurance is the most conservative type of the three. A savings component, called cash value or loan value, builds over time and can be used for wealth accumulation. Whole life is the most basic form of cash value life insurance.
Regular premiums both pay insurance costs and cause equity to accrue in a savings account. A fixed death benefit is paid to the beneficiary along with the balance of the savings account. Premiums are fixed throughout the life of the policy even though the breakdown between insurance and savings swings toward the insurance over time. Management fees also eat up a portion of the premiums.
The investment feature in whole life insurance is tied up within the company’s own investments. The insurance company essentially makes all of the decisions regarding the policy. If the insurance company’s investments perform well then the policy will pay a higher rate of return or dividend. The insurance company will invest money primarily in fixed-income securities, meaning that the savings investment will be subject to interest rate and inflation risk.
This kind of permanent insurance is typically the most expensive but gives you option to have it contractually paid up after a certain number of years. With most companies it will be around 12-16 years. Again though, it all depends on the company’s own financial success, so make sure you are with a proven and solid company.
- Premiums are regular and fixed.
- Builds cash value over time.
- Well performing Investments pay a higher rate or return and dividends.
- The most expensive life insurance option.
- Details of the investment process is closed and obscure.
- Management fees eat up a portion of the premiums
If you need a conservative and fixed permanent life insurance policy, whole life insurance may be a good life insurance option for you.