No Load Life Insurance

What Is Whole Life Insurance

Unlike term insurance (which is only offered for a specified period with or without renewal options), whole life insurance is intended to be kept for the insured’s entire life. This is why it’s also referred to as permanent life insurance. As long as premiums continue to be paid, the policy will remain in place, despite age or health. It is also designed to build cash value, which you can use for various purposes.

Whole life is the original cash value policy. Insurance companies have developed variations to this model and now offer many different types of whole life insurance policies including survivorship, non-participating, participating, modified premium, indeterminate premium, limited pay, economic, single premium, interest sensitive and custom whole life.

How does Whole Life Insurance Work?

• You are covered for your entire life (from the day you purchase the policy until your death) as long as premiums continue to be paid
• A portion of your premiums is invested toward building your cash value
• You can use the cash value by “borrowing” it
• Any amount you borrow from the cash value incurs interest
• The loan amount plus interest reduces the current cash value and the death benefit
• Some whole life policies entitle you to dividend distributions (a share in the company’s profit), although not guaranteed.
• Dividends can be used in a number of ways including: being taken in cash, to reduce premiums, purchase additional paid-up insurance or just left to accrue interest.
• Some policies enable you to purchase “paid up” insurance, which means you can purchase the policy with one large lump sum premium or though several large premiums over a few years.
• Unlike Universal life insurance, which allows premium flexibility, the large lump sum premiums generally have to be made at the beginning of the policy.
• You don’t manage the investment. Only variable life or variable universal life policies give you control over the way in which your premiums are invested.

Benefits of Whole Life

• Combines life insurance with an investment component.
• The cash value builds tax-deferred
• Subject to payment of premiums, the policy remains for your entire life and doesn’t end because of your age or due to health problems.
• Premiums usually remain the same throughout the policy.
• As you get older, you can let the investment earnings pay all or part of the premiums.
• Retirement: life insurance is not an alternative to retirement funding, however, you can access the cash value to supplement retirement income. Of course the loan will reduce the amount available at death.
• Cash on surrender: unlike term policies, you get to keep the cash value balance if you surrender the policy. The cash value is less than the face value (the death benefit).
• The death benefit can be used for anything including paying burial and attorney expenses and paying off the mortgage and other outstanding debts.
• Payment of dividends (not guaranteed).

Criticism of Whole Life Insurance

• Due to the investment component, whole life insurance is more expensive than term policies.
• Because of the price, people often purchase whole life with a lower face value (death benefit) than they really need (intending to grow the face value in time). This leaves many underinsured in the event of a premature death.
• People get excited about the investment factor and lose the true purpose of life insurance (to ensure your dependents can continue their current lifestyle in the event of your death). If you don’t provide adequate cover, how are your children going to afford college, or how is your partner going to pay off the mortgage? See our how much life insurance do I need? page to find out if you are adequately insured.
• The future return estimates quoted by salespersons are just that – estimates. They are not hard and fast facts of how much your investment will grow.
• There are other investment products you can purchase without risking being underinsured and without the high commissions of whole life insurance.

For more information check out Whole Life Insurance™