What Is Whole Life Insurance

March 23, 2019

What is Whole Life Insurance and How Does It Work?

Life insurance written on square blocks on a piece of paper

Most people recognize the value of life insurance for providing vital financial protection. Many don’t, however, understand the different types of insurance. Whole life insurance can be particularly confusing for people. So, what is whole life insurance and how does it work? What is the life insurance term for these policies and what are the life insurance premium costs? For anyone considering a life insurance purchase, it is important to understand the features of whole life insurance.

Whole Life Insurance Features

Unlike term life insurance, whole life insurance provides lifetime protection, has level guaranteed premiums and a cash value. Regarding premiums, once the whole life insurance application has been approved and payments have begun, the policy remains in force even if the individual has a major change in his/her health.

Coverage is typically offered to individuals and their spouses from age 18 to 72. Many competitive whole life policies also make coverage available for children and grandchildren from as young as 14 days old up to and including age 26. Additionally, individuals can purchase whole life insurance for family members without purchasing coverage for themselves.

The cash value aspect of whole life insurance is what makes it most attractive. This guaranteed cash value can be used for any purpose and is accessible through a policy loan. In addition to the cash value that grows in the policy, many whole life policies also enable the insured parties to share in any of the insurance company’s dividends as long as the premiums are paid in full. Dividends are a return of premium and as such are not taxable provided the dividends received do not exceed the premiums paid. They are not, however, guaranteed. The benefits of the whole life policy can be transferred to the insured’s beneficiaries on a tax-free basis.

Other important features of whole life insurance are its flexible benefits. Specifically, a policy holder can select the death benefit and cash value components that best meet their needs and financial goals.

To make paying for whole life insurance convenient, many insurance companies collect premiums through deductions so that individuals don’t have to worry about receiving their insurance bills in the mail and writing out checks.

Costs for whole life insurance depend on such factors as an individual’s age, gender, health, smoking status, job (some positions have higher risks than others), and state of residence. They can start as low as $8.00 per month. Using the example of a male age 25 in good health and a non-smoker, his monthly premium for a whole life policy with a face value of $250,000 could be just under $200 per month, with a cash value at age 65 of around $225,000, and an estimated death benefit at age 65 of approximately $425,000. To give you an idea of how premium costs rise with age, at age 40, his premium would almost double and at age 50, they would almost triple. Because the policy was started later in life, the cash value and death benefits would also decrease based on the shorter timeframe for the cash value to build.

When considering whole life insurance, it is wise to be guided by an experienced insurance professional who can assist in advising you about the best policy and amount of coverage that will best meet your personal and family needs. For more information, visit: www.amalgamatedlife.com