Whole Life Insurance

What is whole life insurance?

Whole life insurance is a type of life insurance that covers your entire life as long as you pay premiums. Whole life guarantees fixed death benefit and leveled premiums. However, premiums are usually higher than in term life insurance. On other hand, whole life insurance is expensive compared to term life insurance. Whole life has saving components known as cash value which is generated alongside your policy and you can withdraw, take a loan or use it to pay your premiums.

Premiums in whole life

Premium is a fee that you pay for the insurance policy. In whole life insurance, premiums do not change, they are level. Since whole life covers your entire life, the premiums are usually higher than in term life insurance. The premium you pay is portioned to cash value, death benefit and operation costs.

Factors insurers use to set the premium costs

The premium is set basing on several factors including age, gender, medical history, heath conditions, hobbies, occupation and unhealthy habits.

• Age; Elders pay higher premiums than youngers because death risk to elders is higher than youngers.
• Gender; Men could pay higher premiums than women because men's death rate is higher than of women.
• Medical history; In case you or your family ever experienced critical or terminal illness before, your premium price could be high.
• Health condition; if you are unhealthy or  ill, you could pay higher amount of premiums than one who is healthy.
• Hobbies; Engaging in dangerous sports like surfing, sky diving and swimming can also make you pay huge amount of premiums.
• Occupation; If you are involved in the risk jobs like pilots, soldiers and security officers your premium will be high.
• Unhealthy habits; If you are a smoker your premiums you could pay high amount of premiums than a non-smoker.

Cash values in whole life

Cash value is an amount that grows alongside your life insurance policy.

Whole life guarantees cash value that increases over time at a guaranteed rate, mostly in a tax-freed basis. You can access the cash value by withdrawing, taking a loan or using it to pay premiums. Accessing the cash value is not taxable unless the withdrawn amount exceeds the total amount of premiums you have paid. But you should keep in mind that, accessing the cash value affects your future death benefit.

In case you cancel the policy an insurer pays you a cash surrender value which is equal to a cash value amount generated during your coverage time minus surrender fee and any outstanding loan. If you die within a coverage period, the cash value becomes the property of an Insurance provider.

How Cash value is built

A portion of each premium you pay is allocated to cash value while the rest is allocated to death benefit and operation costs. Usually cash value grows faster in initial years and slows as you get older, this because more of the premiums is needed to cover the insurance cost when you are older.

Death benefits in whole life

Death benefit is an amount your beneficiaries receive from the insurance company in case you die within a coverage period. 

In whole life insurance, fixed death benefit is guaranteed. The death benefit is usually tax-free. Once you die, Your beneficiaries will be required to show the death prove so as to receive the death benefit.

Rider

A rider is a feature that add an additional coverage to your policy. it is mostly offered at additional cost. Your policy provider may offer you an option to add a rider so as to enhance your policy. For example, critical illness rider that allows you to access your death benefit when you are diagnosed with critical illness.

Advantages of whole life

1. Lifelong coverage; unlike term life insurance policies which cover your life within a certain period of time, whole life provide coverage for your entire life as long as you pay premiums.

2. Cash value; whole life guarantees you a saving components known as cash value in which you can withdraw, take a loan or use it to pay premiums while you are still alive.

3. Level premiums; in whole life, premiums are leveled. This makes them to be predictable.

4. Fixed death benefits; in whole life, death benefit do not change. Therefore, you know the exact amount your family receive once you die.

Disadvantages of whole life

1. Expensive; whole life is more expensive than traditional term life insurance. This because it covers your entire and offers cash value too.

Conclusion

Generally, whole life is suitable to people who need a lifetime coverage with level premiums and fixed death benefits. Also if you need a life cover that guarantees cash values, whole life might be a right choice for you.