What is Whole Life Insurance and which is better?

Whole life insurance is a permanent, cash accruing life insurance policy that is often compared to term life insurance as an alternative. Very similar to purchasing a home, as you pay the premiums due for the coverage you are actually purchasing ownership of the death benefit. These payments begin to accrue just like equity in a home, called cash value. This cash value can be used to pay up the policy permanently, a source of funding, or a return of value upon surrender. Because of these benefits, whole life insurance is much more expensive than term. Whether you believe the benefits outweigh the costs will depend on many factors. You can read more about which is better, whole life or term life here.

What is the cost of Whole Life Insurance?

Like all life insurance, the cost of term depends on various health, lifestyle factors and of course the type and amount of coverage. Age, illness, disease, accidents, occupation, tobacco usage and hobbies all create a health profile on the applicant that heavily determines how much the cost will be. One should be wary of purchasing plans promising “no medical questions” or “guaranteed” without fully understanding the terms of such. We have put together a detailed analysis of the cheapest term life insurance policies available today based on Maryland demographic averages.

What is Whole Life Insurance good for?

Whole life insurance is often used for needs that are not presumed to subside over time. Needs such as planning for funeral expenses and estate taxes are two very common uses. The cash value and interest accumulation also make this type of plan a favorite choice among those who wish to provide coverage and a source of future funding to children.

What are the weaknesses with Whole Life Insurance?

Whole life insurance has a few commonly expressed frustrations. The high cost forces clients to take on a lower amount of coverage if trying to stay within a budget. The plan typically only has a small and flat interest rate that can be credited to the cash value. This creates several initial years in which cash value does not accrue. When cash value has accrued and the client would like access, they often do not understand that taking a loan on the money includes a annually charged interest rate until the balance re-paid. We have seen several cases where this interest bill goes unpaid, gets deducted from the remaining cash value and drains the balance. The result can be a total lapse in coverage. We find that by simply educating the client and administering a well planned policy, these miscommunications can be avoided.