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What is Whole Life Insurance?
As its name suggests, whole life insurance can provide essential coverage over your entire life. Unlike term life policies, whole life insurance provides a minimum guaranteed benefit at a premium that never changes.
Whole life insurance offers several advantages over term life:
- Your whole life insurance policy will never expire. It will remain in effect throughout your entire life as long as you continue to pay the premiums.
- Your whole life policy can never be cancelled because of poor health. Term life policies often require a new medical examination before you're allowed to renew.
- The cost of your whole life coverage will never go up which makes long-term financial planning easier.
- Whole life insurance policies build up a cash value (usually beginning after the first year). This cash value accrues tax-deferred on a continuous basis.
- Some whole life polices earn dividends which can be taken out as cash, used to reduce your policy's premiums, or increase its benefit.
There are also a few disadvantages of whole life insurance:
- The premiums for whole life insurance is more expensive than term life during the younger years which can make it more difficult to afford the coverage that a young family really needs.
- Whole life insurance costs more over the course of an average lifetime.
- You cannot change the face amount of your whole life policy. If you need more coverage later you'll have to purchase another insurance policy.
Tips for getting the best deal on a whole life insurance policy:
- Shop around for the best rates. Whole life insurance premiums and benefits vary widely from company to company.
- Check to see if your employer offers a group whole life insurance plan and compare it to the plans offered by several independent insurers. Don't simply assume that you can get the best plan at the lowest cost through your employer (although you often can).
- Evaluate several insurance companies for stability. How long have they been in business? Do they make solid investments with their policyholders' money? Whole life insurance requires a life-long commitment so you need to make sure your provider will be around to keep theirs.
- Live a healthy lifestyle so that you can switch to a new policy at a much lower premium should the opportunity arise in the future.
Conclusion
Whole life insurance guarantees a minimum benefit at a set premium. It accrues cash value tax-deferred, which means that you'll have ready cash in the future to borrow against should you have an unexpected financial need.
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