Whole Life Insurance
A whole life insurance quote is for your whole life, as opposed to term life insurance, which is for a specific term, such as twenty or thirty years. That is the primary benefit of whole life: a payout is guaranteed. You will not have to worry about becoming uninsurable later in life, and unable to obtain life insurance of any kind.
This benefit of a guaranteed payout comes with a price: your premium may be several times higher than the premium for a level term life insurance policy of the same face amount. This is because a portion of your premium goes to fund a tax-deferred cash value account. And of course, you are buying the life insurance for a longer time period: your whole life.
If you decide to cancel your whole life policy, you are entitled to receive the cash value. Additionally, you may borrow against the cash value at a reasonable interest rate. When you die, funds will be deducted from the insurance proceeds to pay the amount of any loans and interest, if you have not paid them off.
Which brings us to an interesting point. Whole life insurance policies are actually issued with a termination date built in. This date is usually on your 100th birthday. So, if you aren't dead by 100, the policy is terminated and you are given the cash value. The cash value on the termination date will be the face amount of the policy.
So, a whole life insurance policy is guaranteed to pay your beneficiary the face amount if you die, or to pay you the face amount if you live to age 100! Sounds like a good deal, huh? Well, it may be, but there is a "lost opportunity" cost associated with tieing up your money (annual premium payments). You should consult with your financial advisor.
Generally speaking, most financial advisors recommend to avoid this "lost opportunity" cost by purchasing low cost term life insurance and investing the difference in other investment vehicles. These investments should be expected to provide a return higher than the accumulation of cash value in a whole life insurance policy. Recently however, CNBC got a different answer when they posed this question to two financial heavyweights: Is whole life insurance a good investment?
It is often the case that a provider needs life insurance the most just when he or she can afford it the least: when he or she has dependents to support, provide for college, weddings, and so on. Then he or she needs to build a nest egg for retirement. The goal is to have enough invested by retirement that neither the provider nor the spouse needs the life insurance proceeds to maintain lifestyle. Thus the saying, "Buy term and invest the difference."
Whole life insurance is often useful in estate planning. It is one vehicle used by financial planners to protect assets for the next generation. So, if this is something that you may have to worry about, you should consult with a financial advisor.
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