Whole life insurance is a type of permanent life insurance, which means the insured person is covered for the duration of their life as long as premiums are paid on time. Permanent life insurance is different than term life insurance, which covers the insured person for a set amount of time (usually between 10 and 30 years). Like most permanent life insurance policies, whole life also offers a savings component called “cash value”.
Because whole life insurance gives you fixed premiums and a fixed death benefit, you won’t have to worry about increased premiums as you get older. And, your loved ones will also know how much to expect when your life insurance benefit is paid out after you pass away.
A whole life policy can serve as a source of emergency funds for you if something goes wrong, or you may be able to take out a loan against the policy. That’s because a portion of each premium payment you make is funneled into a savings component of the policy called the “cash value.” Over time, the cash value of your policy increases, and you may have the option to withdraw funds or borrow against it. The rules on how and when you can do this vary by company and policy.
Over time, variations of the earliest permanent life insurance products have continued to evolve producing offerings, such as Universal life insurance, Index Univeral Life insurance and Variable Universal life insurance. These policy types differ in investment options, flexibility and emphasis on the growth of cash value. If you need advice on how to use any life insurance product to protect your family from lost income, or to provide cash for payment of debt or future expenses like yours children’s education, we can help.
Term life insurance policies offer coverage for a specified amount of time, typically anywhere from one to 30 years. Term life insurance offers a death benefit, which is intended to help your beneficiaries replace your income if you pass away. For example, the money can be used to help pay for things like a mortgage, education costs or everyday expenses, such as groceries.
If you pass away while your term life insurance policy is in force, your beneficiary will receive the death benefit. If you do not pass away during the term, no one will receive the death benefit. And premiums you pay are typically nonrefundable, unless you bought a term policy with a “return of premium” option.
If your term policy is renewable, you may be able to extend your coverage for another term, up to a specified age. If your term policy is convertible, you may be able to convert it to a permanent life policy. When your term ends, you’ll likely pay higher premiums (or regular payments) if you renew or purchase a new policy.
Term life insurance policies may be classified as either level or decreasing term. Level term policies, in which the death benefit does not decrease, are the more common form of term life insurance. Decreasing term life insurance policies typically see the death benefit decrease at specific intervals during the course of the term.
Finally, some term policies offer a return of premium option that entitles you to have some or all of your premiums refunded at the end of the term, assuming you have made no claims on the policy. It’s worth noting, however, that such policy premiums tend to be significantly more expensive than non-refundable premium options.
