Nowadays people are becoming smarter about buying the insurance as they have a variety of options to choose from and they are well aware of the importance of insurance. Based upon their requirements, like some want accumulation of cash value, some prefer the life long protection, they choose various insurance plans. Whole life insurance is one such insurance plan. Before we focus on the whole life insurance pros and cons, let us first of all know what is whole life insurance. Whole life insurance is a permanent insurance plan which provides life long protection as well as cash value. A part of the premiums paid by the policyholder are used for making investments which earns out interest and are accumulated in the form of whole life insurance cash value. This cash value is tax-deferred and can be withdrawn before the termination date of the policy too. If the insured dies or surrenders, the cash value is given back. In case he is alive, the same can be realized on maturity as the face value of the policy. So a guaranteed payout is assured in case you die or stay alive, which is a complete win-win situation.
This life long protection comes with a price, the policyholder is supposed to pay the premiums called Level Premiums, which do not change over the entire life of the policy, in return for the agreed insurance on a regular basis to avoid the lapsing of policy. Unlike the term insurance wherein only a definite period of time is covered, say 25 or 30 years, it gives whole life protection plus the investment component. But before buying whole life insurance one must analyze the whole life insurance pros and cons. They depend on what type of whole life insurance policies one chooses. Below are the pros and cons of whole life insurance made easy to understand.
Whole Life Insurance Pros
* Life Long Protection: Whole life insurance comes with the advantage that it gives protection for the whole life of the policyholder from the day one purchases the policy until death, as long as premiums are paid regularly. On the contrary term life insurance provides death cover only for a specified duration, mortality element is paid only if you die within the term and not after it. Read more on difference between term and whole life insurance.
* Tax Exempted Cash value or Savings: Cash value on a tax-deferred basis is the biggest advantage of the whole life insurance. One may take loan against the cash value, or get it back if one no longer wishes to continue the policy. This goes on increasing if not withdrawn before the tenure ends and is completely tax free. This cash value can be used to supplement retirement income or the emergency and other needs.
* Death Benefit: Death benefit is the value at which the policy was purchased, it is free of tax. It can be used for wealth transfer or survivor’s benefit.
* Level Premium: The premium value set at the time of policy purchased remains the same over the entire life of the policy. It does not increase like in case of a term insurance. Read more on how does term life insurance work.
* Ease of Cancellation: One can surrender his policy if s/he no longer wishes to continue at any point of time and get the cash value back.
* Dividends: Dividends can also be earned on a policy, but are not guaranteed.
Whole Life Insurance Cons
* High Cost of Coverage: As this insurance covers the entire life of the policyholder, the premium rates are also very high. With the chances of death increases every passing year, cost of policy becomes an affordability issue for the families. Therefore people switch to term insurance.
* Wrong Choice: No two individuals have the same requirement for insurance. For example, some people do not require lifetime insurance. And if they opt for the same, it becomes a wrong choice.
* Investment Tool: Many people take insurance as an investment tool but the cash in value received is much lower than the other alternatives available in the market.
* Inflexibility of Handling: As the insurer himself manages the whole process, so it is not possible to improve the returns of the policy by investing in different stocks or bonds. Hence, these were the whole life insurance advantages and disadvantages.
Now, you might be thinking about the whole life insurance quotes! But before you get your policy quotes, consider the various types of whole life insurance policies offered by different insurance companies which includes traditional, interest-sensitive and single-premium policies. Traditional policies gives you a guaranteed minimum rate of return on the cash value, while interest-sensitive gives the variable rate on cash value and is flexible in terms of changing the death benefit amount without a change in the premium depending upon the economy and rate of return on cash value while single-premium is for people having huge amount of money to buy the policy upfront.
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