The National Association of Insurance Commissioners notes that whole life insurance is the most common form of permanent life insurance, a category that also includes universal life insurance. Whole life works by providing you with a fixed amount of coverage and fixed premiums for the life of your insurance policy’s contract. Death benefits are payable only upon your death, but the policy also builds tax-deferred cash value that allows you to borrow against your life insurance policy.
Before making a final decision on whether to apply for a whole life policy or pursue something different, research whole life insurance rates with multiple insurance companies to compare the rates available to you. Additionally, consider the benefits and risks associated with this type of insurance policy. Some of the main whole life insurance pros and cons include:
Pro: It provides level premiums for the life of the policy.
Con: These policies come with higher price tags than budget-friendly term life policies have, but if you’re young and in good health, you can expect to qualify for the lowest rates. Older applicants can expect to pay high premiums for whole life insurance.
Pro: It provides insurance coverage for as long as you live, not just for a specific term.
Con: Whole life policies cost significantly more than term life insurance policies, many of which can be converted to permanent life after the term ends.
Pro: Whole life policies build cash value.
Con: That cash value rarely gives you a significant amount of money because of all the extra expenses associated with whole life policies. Although many insurance companies bill whole life as an investment, the low returns and limits on how you can use the cash value may make it a poor investment choice for you.
Pro: You can borrow against the cash value of your insurance policy.
Con: Most people don’t realize that you pay interest on any money you borrow against your life insurance. Additionally, policyholders who fail to pay those loans back end up with reduced death benefits.
If you’re still on the fence about whether whole life insurance is a good option for you and your family, consult a broker who sells life insurance for numerous insurance companies. In addition to being able to answer your complicated questions, a broker can also help match you with the companies that offer the lowest premiums for your situation.