What is whole life insurance?
A whole life, or permanent life insurance policy, is actually the traditional type of coverage on the market. Term life is a newer invention, and universal life is newest of all. Many people choose term because the premiums are lower. But you need to understand why premiums are lower before you purchase a policy so you can be sure to make a decision that will benefit you, and your loved ones.
Permanent Coverage
Whole life does not expire. It covers you for your entire life, which is why it has the name it does. As long as the policy is kept in force, the policy will cover a person's life. By keeping the policy in force, we usually mean to say that the premiums are paid or the policy is paid up. So, if an insured person buys and keeps permanent coverage, they will be eventually get a payout.
Most policies stay active until age 100. At 100 years of age, if the beneficiary is still alive, they will collect the face value of the policy. If the insured person does not live until 100, their beneficiaries will collect the face value of the policy. So if you buy and keep a $50,000 policy, and live to be 100, you will collect that amount as a birthday present. If you do not live until 100, your beneficiaries will collect the $50,000.
Cash Value
You can also build up a cash value. So your policy can also be used as an asset, in addition to covering your life. The first few years will not see much growth, but after your policy is a few years old, it should have some value. You can use this value in different ways. In general, you can borrow against it while still leaving the policy in force. You can also cash it in if you need to use the money now, but then you will probably not leave your policy in force.
This is different from term coverage. With term, you generally do not have any cash value that can be cashed in, and once your policy expires it has no value. Beyond that, temporary policies are usually purchased for a period of 10, 20, or 30 years, so they will expire. So now you can understand why permanent life insurance costs more than whole life insurance.
Why Do People Buy Whole Life?
Some people understand the benefits of permanent coverage. They want to be able to leave their beneficiaries money, usually tax free, no matter when they die. This is called a transfer of wealth. Life insurance is a great way to accomplish this.
Senior realize that their family will have expenses when they pass away. They know that funerals are expensive, and can cost several thousand dollars. They also know that family members may have to travel or settle debts like medical bills. They want to make sure that their family has the cash to accomplish this. As a sort of final gift, they want to leave their family well prepared to handle their own passing.
Sometimes adult children will buy a whole life policy for their parents. They may be in a better position to pay the premiums, and they just use the policy as a financial planning tool so they will have cash to pay for a nice funeral and other final expenses.
We want to help you if you need whole life insurance explained.
Also learn more about Final Expense for Seniors.
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