Whole Life Insurance provides permanent protection for your entire life. It is a form of permanent life insurance featuring guaranteed premiums, guaranteed death benefits, and guaranteed cash value. Whole life insurance policies also give you the potential to receive dividends, which can increase the value of the policy when the insured is living or provide an increased death benefit for your beneficiaries.
It is the most costly type of life insurance from a premium perspective. However, it does offer significant benefits over term life insurance.
Benefits of Whole Life:
1. Lifetime death benefit protection
2. Premiums are level for life
3. Guaranteed cash value + Tax deferred growth
4. Ability to borrow against the cash value if needed (Some carriers now offer a 0% loan)
5. Potential for dividends (Dividends are not guaranteed)
6. Add extra premiums to the policy
Companies typically have the follow types of whole life. (Options vary by insurance company and insured’s state of residence)
Pay to 100 – Pay premiums forever
Pay to 65 – Pay premiums until 65, but the death benefit is guaranteed to age 100 and beyond
20 Pay Whole Life – Pay premiums for 20 years and death benefit stays in effect for your lifetime
15 Pay Whole Life – Pay premiums for 15 years and the death benefit stays in effect for your lifetime
10 Pay Whole Life – Pay premiums for 10 years and the death benefit stays in effect for your lifetime
Single pay Whole Life – Pay 1 premium and coverage stays is in effect for your lifetime
Values and guarantees can affected by policy loans.
Universal Life Insurance
Universal life insurance is a form of permanent insurance. Unlike Term Life insurance, Universal can last for your entire life or for whatever duration you prefer. Your premium will be determined by the length of coverage you choose and the premium payment duration. Universal Life costs more than term life insurance because you are insured for a longer period of time. The policies can be structured to guarantee your death benefit to last until age 100 or beyond. It offer premium and duration flexibility.
Unlike Whole Life, Universal life policies are non-participating which means that they do not earn any dividends.
Universal Life is a good alternative to whole life if someone would like permanent coverage, but would like to pay less premiums.
Cash Value Accumulation:
Depending on the type of universal life policy, premiums paid and features of each policy, you can accumulate cash value in the policy. The cash value in some policies earn interest based on a fixed interest rate while others earn an interest based on a market index.