The first key advantage of whole life insurance is that the cost of the premiums paid to the policy never increases, as long as you make sure to pay the premiums and the policy doesn’t lapse. The reason why this is important is because with term policies, your rates rise over time. This is due to the changes in your health and age.
In whole life policies, the premiums paid go towards increasing the cash value and, if you are willing to pay more, increasing the death benefit. Further, your cash value earns interest similar to a savings account. Your cash value and death benefit can never decrease in value unless you start withdrawing the cash value from the policy.
It is possible to borrow against the cash value of your whole life insurance policy. For example, if you ever find that you are in need of cash, perhaps to help pay for a child’s education, you can borrow money from the cash value of the policy..
Since whole life insurance policies are a true long-term investment, your relationship with the insurance company will literally last a lifetime. Picking a company with the highest ratings both for financial stability and customer service is the key.
While there are many positive aspects to whole life insurance, there are also some disadvantages to consider.
The cash value of a whole life insurance policy will not start to build until two to three years of continual premium payments.
Whole life is much more expensive than other types of life insurance, such as term life. Make sure that the cash value and permanence of the insurance policy justify the excess premiums relative to a term policy with the same death benefit.
Whole life policies can be extremely complicated and there are subtle differences between policies. Careful research, a solid relationship with the insurance agent, and a clear understanding of your insurance needs and priorities are keys to getting the right policy.
Whole life policies have a surrender period. A length of time that you must keep your money with the insurance company before withdrawing it. If you wish to withdraw it before the end of the surrender period, you pay a surrender charge, usually around 10% of the account value. Commonly a surrender period is 5 to 10 years, but you should read the policy carefully to make sure you understand how long this period is on your particular policy.
Loans are not immediately available. Most policies have a minimum cash balance typically at least $10,000 and a period of time you must have the policy typically five years or more before you can borrow against the policy. Once you have reached these milestones, you can typically borrow up to 75% of the cash value.
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Life insurance can help provide for the people who depend on you financially, if you can't be there for them.,