Many of the questions you may have regarding whole life insurance can certainly be answered by a knowledgeable life insurance agent or broker. However, before you go shopping, it might be a good idea to educate yourself on the basics. Not only does this provide you with valuable information, but it can help prompt additional questions that you might have as you're deciding on what type of policy to buy. The following are three basic elements that define a whole life policy:
1. Whole life insurance is permanent insurance
Whole life insurance is a permanent* cash value policy that provides coverage for your whole life, rather than for a specified term. Typically, a whole life policy remains in force as long as required premiums are paid. It provides protection that can last your entire lifetime and your beneficiaries typically receive death benefit proceeds tax-free.
2. Whole life insurance earns cash value
Each time you pay your premium, a portion is used to provide you with life insurance coverage. The remainder, however, is set aside and allowed to accumulate. This component, called cash value or loan value, builds over time and can be taken out as a loan against the policy. Keep in mind that loans against the policy will accrue interest and decrease both death benefits and cash value by the amount of the outstanding loan and interest.
3. Whole life insurance offers
- Level premiums — The premiums you pay remain the same for the life of your policy, regardless of your age or health.
- Death benefits — Your beneficiaries receive the face amount of the policy upon your death. However, the death benefit will be reduced by any outstanding cash value loans and interest.
- Cash value — Your cash value will grow each year, tax-deferred. You also have the option of borrowing against your policy's cash value.
A whole life policy might be right for your family if:
- You're looking for life insurance that you can't outlive.
- You need life insurance to be part of your long-term financial planning.
- You want the opportunity for you policy to build cash value.
Deciding on the type of life insurance doesn't have to be overly complex. Now that you are armed with some basic information, you'll be in a better position to discuss with your agent and determine the best policy for you.
* As long as required premium payments are timely paid.
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