Understanding How Whole Life Insurance Works

Many people are understandably unsure as to what whole life insurance entails and if they would actually benefit from it. After all, isn’t it similar enough to term life insurance that getting it would be redundant?

The fact is, whole life insurance can be incredibly beneficial, affording you peace of mind as you ease into your senior years. Many people invest in life insurance for themselves, allowing them to be confident that they will be taken care of for the rest of their lives.

What Exactly is Whole Life Insurance? 

Whole life insurance is a type of insurance that is designed to give you coverage throughout your entire life, as its name suggests. When you pass away, the benefits will be paid out to your beneficiary of choice, typically your family. This is guaranteed to pay out, as long as you adhere to the terms of your insurance contract.

This is starkly different from term life insurance. Unlike whole life insurance, term life insurance only pays out a benefit if you pass away within a certain time frame, typically five to ten years. For people who expect to live longer, whole life insurance can be much better for them.

In addition, the payments you make into this insurance policy tend to remain fairly stable. This makes it easier to account for how much you need to set aside each month to pay for it. Unlike other types of insurance, your rates are not generally expected to increase.

Is Whole Life Insurance the Better Choice?

Depending on your budget and your goals, whole life insurance may be a better choice for you. That said, there are pros and cons to selecting this type of insurance, and it’s ideal to make sure you fully understand them before committing to one or the other.

The benefits of choosing whole life insurance include:

  • Coverage for your entire life
  • A guaranteed payout upon passing away
  • Predictable payments each month
  • Tax benefits
  • With some companies, you can earn dividends

Conversely, there are also some disadvantages that you should be aware of, including:

  • It can be very strict on accessing its cash
  • It can also be considerably more costly than term life insurance
  • This type of insurance is fairly complex, making it more difficult to understand
  • Some people consider investing a better use of their income

Another benefit of whole life insurance Brandon Roberts explains is the nonforfeiture options, “When in doubt, you may find it best to speak to an insurance agent to better understand which of these are ideal for you.”

What is the Process for Getting Whole Life Insurance?

Getting set up with a whole life insurance plan can be fairly simple and straightforward. However, that said, there are a few steps you do need to complete first before you can secure the right plan for yourself.

This insurance will pay for a variety of things, including:

  • Your funeral costs
  • A supplement to your retirement income
  • To replace income lost after death

Before you can get approved for whole life insurance, you may first need to complete a medical exam. You’ll also need to provide your medical history, as well as your parents’ medical history. The insurance company may also need to know your financial information, in addition to other pertinent details.

The entire process could take about a month to a month and a half. Once you complete the requisite steps, you’ll then be told what your premium (the rate you’ll pay for the insurance) by the insurance company. This is typically based on a variety of factors, including your health, age, and how much insurance you want. Fortunately, it is typically locked in and won’t change if you become unhealthy, for instance.

Is Whole Life Insurance Right for You?

Deciding whether or not you need whole life insurance can be a personal decision, and it’s not one to be taken lightly. For instance, if you’re looking for long-term coverage, this may be a good fit for you. You also need to be able to afford the premiums, in addition to having enough money set aside for your retirement.

If you would like to know if whole life insurance is ideal for you, it’s always best to speak to a knowledgeable insurance broker. They can help you better understand if you may benefit more from a whole life insurance plan, a term insurance plan, or something else altogether. To learn more about these insurances, please do not hesitate to contact us today.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.