What Is Whole Life Insurance?
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What Is Whole Life Insurance?
The primary purpose of life insurance is to provide financial support to your beneficiaries in the event of your death. Every type of life insurance policy has a regular cost (called a premium) based on your life expectancy and the type and amount of your insurance coverage.
Things To Know
- Term life provides insurance coverage for a specific period of time. Permanent life covers you for life as long as you make your premium payments.
- Variations on whole life insurance include universal and variable life insurance.
To compare: term life insurance
A term life policy provides insurance coverage for a specific period of time (term). At some point in the future, depending on the particular policy design, the premiums may begin to increase annually according to your age. The older you get, the more pricy a term policy can become, and you never receive a benefit from it, though your beneficiaries will if you die. If you try to hold onto it into later years, you might end up paying total premiums greater than the value of the death benefit.
More on whole life insurance
A permanent life insurance policy covers you for life as long as you make your premium payments. The most traditional form of permanent life insurance is whole life. Once you are approved for the policy, the insurance company cannot cancel the policy, and the cost of your payments will not go up, because it "averages" insurance costs over your lifetime. This means that over time the policy develops a cash value, which is a reserve the insurer accumulates in the early years so there will be sufficient money in later years to pay the promised death benefit, while keeping the premiums level.
Premiums for whole life policies are initially higher than those for term, but over the long run can end up lower and sometimes much lower.