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Is Whole Life Insurance worth the Investment? What are the Principle Elements that Define it?

March 24, 2022

Is Whole Life Insurance worth the Investment

If you are in the market for life insurance, you will likely come across various types of life insurance including whole life insurance – which is more expensive (at least upfront) than something like term insurance. And this leaves the question as to whether whole life insurance is really worth the investment or whether you should simply go with the more affordable option.

But to know whether whole life insurance is worth the investment, you need to understand what it is for and the elements that define it.

What is whole life insurance?

Whole life insurance is a type of permanent insurance. In most cases, there is a steady death benefit and a steady premium that you pay as long as you own the policy. It also means that once you are approved for this type of insurance, you can never be “unapproved” due to a change in health status.

Another feature of whole life insurance is that over time as you pay your premiums, a cash value builds up inside the policy.  This cash value is a resource that you can borrow from for various purposes such as paying for education or making a down payment on a home.

Some whole life insurance policies also pay dividends which may be collected in cash, used to buy additional life insurance, or used to pay a portion of your premiums.

What is whole life insurance for?

Because whole life insurance is a type of permanent insurance, it is best suited for needs that are permanent. For example, your need to pay for your child’s education ends when your child becomes an adult – a temporary need that can be filled with temporary insurance, however your need to provide for your spouse after you’re gone is a permanent need since you don’t know which of you will outlive the other.

Can’t I just get term insurance instead?

Many young families opt for term (or temporary) insurance – even for permanent needs - when they are starting out because the lower premiums are more affordable. But while term insurance for permanent needs is better than no insurance at all, it is not ideal.

This is because at the end of the term, in order to keep their insurance it will have to be renewed at the person’s new age (usually 10 or 20 years older) which will make it much more expensive. Over time, term insurance is usually much more expensive than if the person had just gotten a permanent insurance like whole life when they were young.

Furthermore, if a person’s health changes during their term, they might get rated which means they will have to pay a higher premium than a healthy person.  Or alternatively, if the health change is really drastic, they may be denied having their insurance renewed altogether. These are things that cannot happen when a person buys whole life insurance when they are young and healthy.

Whole life insurance cash value

As mentioned, another benefit of whole life insurance is that a cash value will build up inside the policy over time. This is a source that the insured will be able to borrow from regardless of their other assets or credit score. And the cash value that develops can often be quite significant.

For example, if a parent were to purchase whole life insurance for their infant (something that would be very inexpensive due to the child’s young age), they could potentially have a large enough cash value for that child to use as a down payment on a home, when that child grows up.

While whole life insurance may not be the right solution for every need, it is certainly worth the investment in a number of scenarios. To learn more, contact InsLyf today!