When shopping for life insurance, there’s a chance you’ll consider both term and whole life insurance policies. While term life insurance is often the more affordable option, whole life insurance offers coverage for as long as you live. It’s a good idea to weigh your options when considering life insurance, so we put together some of the top questions to consider when it comes to whole life insurance policies.
Whole Life Insurance Explained: What is whole life insurance?
Whole life insurance is a type of permanent life insurance that provides a set amount of coverage for as long as you live. You decide how much coverage you need and unlike term life insurance, the policy never expires as long as the premiums are paid.
The premium rates for whole life insurance are determined by the coverage amount, your health status, gender, age and what hobbies you participate in. Once determined, the premium amounts stay the same.
You will designate one or more individuals as named beneficiaries on the policy, and these individuals will receive the coverage amount (called the death benefit) when you pass away.
Whole life insurance coverage is an excellent option if you seek lifetime coverage and level premiums that never increase. In addition, whole life insurance also accrues cash value. The cash value part of your whole life insurance policy earns interest and grows over time as you make your premium payments. You can often borrow funds from the total cash value of your policy, which can help fund other financial expenditures such as paying for a child’s college education or putting a down payment on a home.
1. Is whole life insurance or term life insurance a better option for me?
Both term life insurance and whole life insurance have their advantages and considerations. Our term life insurance vs. whole life insurance guide can help you better understand the two types of coverage and weigh your options, but whole life insurance might be the right fit for you if:
- You’re looking for lifelong life insurance coverage.
- You’re the parent or guardian of a child with special needs.
- You’re hoping to provide an inheritance for your loved ones when you pass.
- You want to maximize a pension.
- You have a high-net-worth.
- Your budget allows for more expensive premiums.
2. Are whole life insurance premiums affordable?
Whole life insurance often costs much more than term life insurance due to the cash value savings account and the lifetime coverage it provides. Those features make the premiums more expensive than term life insurance, which expires after a set amount of time and does not have a cash value component.
You might be able to receive a discount on a whole life insurance policy by paying an annual premium instead of paying monthly. If you’re looking to buy whole life insurance, it’s important to weigh your options and ensure you can pay the higher monthly premiums that come with it according to your budget. SelectQuote can help with this by providing unbiased quotes from several carriers to find the best rate for you.
If whole life insurance is too expensive, SelectQuote can help you find a term life insurance plan. Plans last up to 30 years and are more affordable than whole life rates.
3. Do I need a permanent death benefit?
A permanent death benefit is a death benefit paid out from a permanent life insurance policy, like whole life insurance. So whether you die in the next few years or 50 years from now, the benefits are paid out to your beneficiaries.
You may want to consider a whole life insurance policy if the needs of your loved ones cannot be met by the benefits of term life insurance. The permanent death benefit of whole life insurance is typically favored when:
- You have an estate or inheritance that your family would be expected to pay taxes on if the unexpected were to happen to you.
- You’re a parent or guardian of a special needs child that is dependent upon your income.
- You are a business owner and want to ensure your business partners/beneficiaries can continue running said business upon your passing.
4. How much whole life insurance coverage do I need?
How much life insurance coverage you need will depend on your long-term financial responsibilities, your income, the cost of final expenses, and more. Our life insurance calculator is a good place to start when figuring out how much coverage is right for you and your family. Our experienced licensed insurance agents here at SelectQuote can also help you find the right coverage amount for your specific situation.
5. Do I understand the cash value of a whole life insurance policy?
One of the main advantages of a whole life insurance policy is the cash value component, which increases each time you pay into your policy. In insurance terms, the cash value is the portion of your policy that accrues interest and can be borrowed against. You can often borrow against the whole life insurance cash value tax-free to pay for major expenses, like substantial medical bills or to help pay for a child’s wedding.
You can also cancel your coverage to receive all or part of the cash value once it reaches a certain amount. However, it takes many years to build up a substantial cash value and if you were ever to decide you can no longer afford the policy, you could potentially be out of that money with little to no cash value to take with you.
Frequently Asked Questions About Whole Life Insurance
Here are questions we often hear when people are shopping for whole life insurance.
Why do people purchase whole life insurance?
There are several reasons people purchase whole life insurance:
- The desire for lifelong insurance coverage with premiums that do not increase over time
- High-net-worth individuals or business owners who want to ensure their businesses can stay up and running after they pass away you’re looking for lifelong life insurance coverage
- Individuals wanting to leave an inheritance or legacy behind for their loved ones
- A parent of a special needs child that is fully dependent on that parental income
Can a whole life insurance policy mature?
Yes, whole life insurance policies can mature. Policies written before 2004 were typically structured to mature when the policyholder turned 100 years old. At that point, the policyholder would receive the face amount of the policy or the amount of the death benefit and the policy would end. However, a payout like this was considered a taxable event (by contrast, death benefits are tax-free), so the policyholder would have to pay taxes on the money from the policy.
To prevent this, insurance companies now issue a Maturity Extension Rider (MER) to existing policies issued before 2004 to extend the coverage and prevent the policy from maturing.
Now that people are living past age 100 more frequently, insurance companies have updated their life expectancy ranges (called mortality tables). The previous cutoff of 100 is now age 121.
How long does it take a whole life insurance policy to build cash value?
The cash value component of whole life insurance can be a great financial asset, but it does take some time to build that value. It can often take 10 years or more to build up the cash value of a whole life insurance policy.
At what age should you get whole life insurance?
Life insurance generally becomes more expensive to purchase the older you are, and the same is true for buying whole life insurance. The younger you are, the more affordable your premiums will be. Most experts recommend shopping for whole life insurance between 30 and 60 years old.
SelectQuote Can Help Answer Your Whole Life Insurance Policy Questions
At SelectQuote, we help you understanding the benefits of different types of life insurance and streamline what can be a confusing and overwhelming process. Whether you have questions about whole life insurance policies or are just beginning to look into your life insurance options, we can compare coverage and costs from some of the most trusted life insurance companies in just minutes.