What makes the purchase of life insurance so tricky is the fact that the field is fraught with misleading terminology and, adding insult to injury, the realization that the identical product is considerably more expensive at insurance company A than it is at company B. What is whole life insurance and do you need it/
To cut to the chase, whole life insurance is little more than a life insurance policy that covers you for what is considered your whole life. This differentiates from term life insurance which is cheaper, but only covers you for the term it is good for, say five years, 10 years, or more, depending on the term you and your agent agreed upon when you first purchased the coverage.
Since whole life insurance presents an increase in risk for the insurance company as you age, this kind of policy is more expensive than term life insurance which pretty much allows companies to hedge their bets, especially as they insure younger individuals. Because whole life insurance uses level payments as one of its major selling points, these premiums need to be significantly higher to defray the risk of your increase in age.
While this may sound like an odd way to insure your life, the stellar advantages of whole life insurance soon become clear when you note that there is a cash value attached to the policy which actually allows you to receive the cash value if and when you decide to surrender the policy instead of keeping it in force until you die. In addition, you have the option to take out a loan against the cash value of your whole life insurance policy which of course is great for those contemplating the purchase of a large asset, such as a piece of real property, but might be a bit short when it comes to a down payment. In the same vein, the first year of college expenses for your children may be covered with a loan against your policy or by simply surrendering the policy altogether.
This makes whole life insurance a savings method to which life insurance coverage is attached. Since the cash value accumulates without the need to pay taxes on the increases, younger savvy investors are looking to this kind of insurance product as the best way to grow their wealth tax free. Yet even as this is considered a great way to go when it comes to saving money, there are also some problems associated with this kind of policy.
Detractors of whole life insurance policies claim that with smart investing and a savvy broker, you have a chance of accumulating more wealth of the same period of time than you would have when you use this kind of insurance policy as a savings account. While this may be true, it is just as true that many a young person is not terribly worried about investing their money or even saving it, and thus this kind of coverage is a good intermediate step in the process to at least put some money away.
Now that you know what whole life insurance is, do you need it? If you can afford it, you need it!
