Deciding to Buy Whole Life Insurance

Written by: Christy Rakoczy


Whole life insurance is a type of life insurance protection that does not expire after a set term. When you buy whole life insurance, the policy remains active as long as you keep it active and keep paying premiums. Whenever you eventually pass on, your named beneficiaries will receive the death benefit associated with your policy. For instance, if you buy a whole life policy with $1 million of coverage today and you keep the policy active and die in 50 years, your named beneficiary will receive the $1 million death benefit.

Whole Life Insurance vs. Term Life Insurance

Whole life insurance is so named because it is an alternative to another life insurance product referred to as term life insurance. Term life insurance is good for a designated term, which can range from anywhere to a few years to 30 or 40 years. Term life insurance costs significantly less than whole life insurance and is a good option for people who have beneficiaries depending upon their income but who expect that one day those beneficiaries will no longer need their income (for instance, the policy might be in effect until a house is paid off, kids are in college and there is enough money in retirement savings that the insured’s income is no longer required to meet the bills).

Whole life insurance, on the other hand, always protects the beneficiaries named in the insurance policy. This makes it a great option for situations when the money will always be needed such as when there is a disabled child to care for or when there will be large estate taxes that need to be paid upon a person’s death (the proceeds from the whole life policy can be used to pay the estate taxes so assets from the estate do not need to be sold off).

Whole Life Insurance as an Investment

Whole life insurance policies are significantly more expensive than a term life insurance policy. Some of this cost is associated with the fact that the policy never expires, so it ultimately will pay out to the designated beneficiaries since it is a given that the insured will eventually die.

However, whole life policies are also expensive because the premiums are equal to more than the cost of providing the insurance, especially when the insured is young.  Whole life policies cost more than the cost of insurance in part because the policy is used as a vehicle for investment. It accrues a cash value and, depending on the terms of your policy, you may get a guaranteed rate of return from that cash value of you may be given the opportunity to invest the money in the policy into various mutual funds or other investment vehicles.

Should You Buy Whole Life Insurance?

Most financial experts recommend purchasing term life insurance instead of whole life insurance since whole life isn’t widely viewed as a great investment. The returns tend to be lower than for other types of investments, and there are fees and costs associated with the policy that can further eat into returns.

However, if you want a simple and guaranteed way of investing, or if you have the need to always have a death benefit pay out, then whole life insurance may be a viable option in your situation.


Deciding to Buy Whole Life Insurance

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