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When Should Someone Go With Whole Life Insurance?

When Should Someone Go With Whole Life Insurance?

Deciding which type of life insurance policy to purchase can seem daunting at first due to the terminology, legal requirements and explanations of various benefits. As with most financial decisions however, it is best to simplify the process and select from the most widely used coverages when protecting yourself and your family. The two most popular types of life insurance are "term" and "whole life". Depending on your lifestyle, personal goals and financial acumen, a whole life insurance policy may be more appropriate than other offerings. For better understanding of what whole life insurance encompasses let's take a look at the specifics.

The most common justification for purchasing a whole life insurance policy is that it is also used as an investment tool. Whole life insurance policies come with an added benefit: cash value which accumulates over time as premium payments are made. This value-added investment benefit does come at an additional expense. Whole life insurance policies with cash value often require higher monthly premium payments and higher associated maintenance fees. For some though, the higher premiums remain consistent through the life of the policy making it a predictable expense which can be incorporated into monthly budgets.

Consistent premium payments for years and cash value accumulation may or may not be a benefit to some consumers. More financially savvy individuals may view the cash value as unnecessary if they manage their own investments such as a 401(k) or broker account. It may also be cost prohibitive for a young couple starting a family to purchase whole life insurance since term life insurance has significantly lower premiums. Term life insurance is normally purchased for no more than 30 years which covers both raising young children and paying off a single 30 year mortgage on a primary residence. Life is unpredictable and a whole life insurance policy automatically increases in value and provides long-term protection which guarantees greater security over a longer period of time.

The cash value of a whole life insurance policy can be used at any point for any reason. Loans can be drawn against the accumulated cash value to make premium payments in the short term or supplement retirement income later on. Since Social Security may not provide enough monthly income and many companies have eliminated pension plans as a retirement package, a whole life insurance policy's cash value can make a difference in living standards later in life. If a consumer, instead of drawing against the cash value, decides to completely cash out their whole life insurance policy there may be significant surrender fees involved.

All life insurance policies typically have similar underwriting requirements to qualify for coverage. This may include but is not limited to a physical to determine current overall health and routine blood work to check for predispositions like diabetes or high cholesterol. Whole life insurance policies are not for everyone and both the requirements and costs may be too much for some consumers. Fortunately, there are other options available such as term insurance which provides more flexibility at lower cost but for a shorter duration with no cash value. Evaluate your lifestyle and goals to determine which life insurance policy is right for you. This is especially important given the many decades you may be paying life insurance premiums.

Image by: Piero Fissore