Whole life insurance is a popular type of insurance plan for those who wish to have permanent life insurance coverage with a guaranteed death benefit and premiums that will never increase (always remain the same). Whole life insurance is a popular choice for many physicians and doctors who are looking for its level of guaranteed protection and cash value benefits.
Whole life insurance has been around for quite some time and many life insurance companies have whole life insurance or some variation of it. Whether you are looking for whole life insurance, term life insurance, or a universal life insurance policy be sure and do your research.
Protecting your family is a smart and responsible decision. Entering into a life insurance contract should not be entered into haphazardly. Spend some time comparing life insurance quotes and be sure that you work with an agent to make sure that you fully understand the different plans.
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When looking for information on whole life insurance, there are definitions and comparisons that you’ll need to understand. Whole life insurance is considered by some an investment beyond the life insurance portion of your funds. Is it a good investment for you? Here’s some information you should have if you’re considering protecting your family with a whole life insurance policy.
Definition Of Whole Life Insurance
Whole life insurance is designed to last even after you finish paying the premiums on it. This is an important distinction between the other popular type of life insurance which is called term insurance.
If you take out a term life insurance policy, you’ll be charged an annual or monthly premium and receive coverage for as long as you are paying on the policy. Once you stop paying those yearly fees, your benefits are terminated.
Whey you take out a whole life insurance policy, it works very differently. Let’s say you pay the premiums for the same 50 years as someone who bought a term policy, and you both stop paying at age 70. With a whole life policy you will still retain benefits for the rest of your life.
How?
Only part of your premium payments on a whole life policy go to cover the actual insurance. The other part of your payment is invested in an interest bearing “accumulation account” that actually makes you money as it sits there. That’s why a main selling point of this type of policy is that it’s an investment.
Drawbacks Of A Whole Life Insurance Policy
Now if you’re thinking, hey that’s pretty smart! What an easy way to set aside money while making for my beneficiaries.
Well, that’s true. However, to appreciate the big picture you’ll need to understand your return on investment for an account like this, and know exactly they do with your money.
Typically, you’re going to get a fairly low interest rate on this type of investment. Higher than your savings account, yes. But lower than the average of investing in mutual funds or the market. That’s because the insurance company actually uses your funds to make those types of investment where the average return is usually in the 10-12% range. So your ROI will be lower to insure that they make money off the deal.
Does that mean it’s a bad deal? Not necessarily.
One thing to look at is your personal investing and money management habits. Are you willing to make the effort to invest and manage the funds you could put into whole life? If not, socking that money away every year when you pay the fixed premium could be a good idea.
If you know you could invest in a term policy and get a better rate of return on that money, you may want to consider that instead.
Types Of Whole Life Insurance Policies
You do have options for whole life insurance. There are both universal and variable policies, and you need to know the difference.
- Universal life insurance policies guarantee that, if your accumulation account performs better than expected, you will take the additional financial gain. The downside if that if your account underperforms, you can end up paying more than you expected.
- Variable life insurance policies invest your accumulation account money in accounts that are similar to mutual funds. These carry the same risks listed above.
One thing to now with both types of whole life policies is that you can lower your premiums by signing up for policies with a higher expected rate of return. Be aware that this can be deceptive. It could be easy to look at a lower premium and think it’s a great deal if you don’t understand the risks attached to it.
How To Find A Whole Life Insurance Company
If you think a whole life insurance policy might be a good way to cover your family’s life insurance needs, you’ll definitely want to make this investment with a reputable company that has a proven record of stability and success.
Some independent companies that rate insurance companies using a variety of criteria are A.M. Best, Moody’s, and Standard & Poors.
Remember, while you may hear some financial experts say that whole life isn’t the best place to put your money, that’s usually based on the assumption that you have the desire and knowledge to outperform the investment.
For someone who is comfortable with the average return of these account, and happy just to know that the accumulation account will be there for his or her family, whole life insurance can be the right move.
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