Whole life insurance is known as a kind of “permanent” life insurance, set in place for your entire life.
If you’re asking yourself whether or not investing in life insurance is worth it, the answer, in short, is yes. Life insurance is worth it if you have family members who count on you. But the real challenge is deciding which type of life insurance is worth investing in. Whole life insurance is known as a kind of “permanent” life insurance, set in place for your entire life. Read on to learn all about whole life insurance, how it works, and how it differs from term life insurance.
What Exactly is Whole Life Insurance and How Does It Work?
As mentioned prior, whole life insurance is meant to be in place for your whole life, hence the name. This means that at some point a death benefit is certainly going to be paid to a beneficiary from the insurance company, as long as the premium is paid. In the beginning of your contract and application process, you and your insurance company will decide your policy amount and what they call the “death benefit.” This is the amount that will be paid to your loved ones (beneficiaries) once you pass away. Then you are told how much your “premium” will be each month. The premium is what they call the cost of your insurance. As long as you pay the premium, you are covered. With whole life insurance, the premium is a locked amount. It cannot change. A portion of the premium will go into what’s known as the “cash value” part of your policy. The longer the policy lasts, the more cash value will build up.
Here is more information on the Whole life insurance process:
You Pay the Premium
Each month, the insurance company will put a portion of your premium into your cash-value account. The breakdown of how much is invested versus how much goes towards your policy will vary over the years. In the early years, a larger percentage of your premiums are put towards the cash value, while in your later years, more of it is going towards your policy, since the cost of insurance increases as you age.
Your Cash Value Grows Over Time
Your insurance company will give you an interest rate on your cash value. Much like a savings account, your cash value is supposed to grow. After you’ve built some up, you can choose to borrow against it, or leave it as it is.
You Reach the “Maturity Age”
Insurance companies all have different ideas on what a “maturity age” is. But most agree anywhere from 100 to 120 years old. So if you live to 120, not only will you be on a shortlist of supercentenarians, you can finally get a check for your cash value! This is unlikely for most, so how can you use your cash value the right way? By:
- Taking out a loan against the cash value or
- Surrendering your policy.
In the long term, whole life insurance is a worthwhile investment but can cost more than other types of life insurance such as Term Life Insurance. This is because the insurance company assumes that one day there will absolutely be a claim for the death benefit. Whole Life “Cash Value” Life Insurance is best purchased through a licensed Life Insurance agent, as the contract can be complex to understand. Discuss with a licensed insurance expert from Healthcare American about whether term or whole life insurance is a better fit for you!
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