The Advantages of Whole Life Insurance

Life insurance, such as Whole Life Insurance, provides a valuable benefit. Life insurance provides an amount to help ease financial burdens in the event of a person's premature death. The question however is whether you want to own that protection or rent it.

Whole life insurance is permanent protection that also has an accumulation feature. Cash value grows inside the policy and is available for the policy owner to use at their discretion. This living benefit makes whole life protection a valuable part of a person's insurance portfolio.

Value is created in the policy through premiums paid, plus interest earned on the net amount invested. Mutual insurers may also pay policy dividends on participating policies. The dividend is the premium amount paid in advance, in excess of what is needed for the coverage. The dividends add value to the policy and can be used to reduce premium or increase the coverage amount. The dividends may also be taken as cash, although if this is done the amount is taxable.

The amount of premium paid is calculated using the insured's age, gender and health condition. The premium stays level and is payable for either a short period of time or up to age 100. Those policies with short premium periods are more expensive than straight whole life to age 100. From the gross amount of premium mortality expenses are deducted and the net premium is invested. The benefit is payable when the insured reaches age 100, if death has not occurred.

The cost of whole life insurance is it's biggest negative, as it can get to several multiples when compared to its term insurance counterparts. The cash accumulation unique to whole life insurance accounts for this pricing difference. With term insurance, you are purchasing pure protection or cost of insurance. The benefit is payable at death if occurring during the term period. When the term period has been reached, the policy expires with no value. Whole life retains value that grows each year that premiums are paid.

Another benefit of whole life insurance over term insurance is non-forfeiture values. This will allow the policy owner to recover the policy's value when unable to maintain the protection. How it works is that cash value is used to either pay premiums when due or the cash value can be surrendered to the policy owner. The policy owner may also opt to convert the policy into a paid-up policy reduced in value. Finally, the policy can purchase an extended period of comparable term coverage.

The coverage has an endowment or maturity age of 100. When the insured becomes that old, the benefit is automatically payable to the policy owner. This is accomplished by the appreciated cash value consisting of premiums and interest equaling the face amount. Essentially the owner has paid for the benefit completely at age 100.

There are trade-offs between owning permanent coverage and temporary insurance like Term Life. The higher costs associated with owning Whole Life is offset by the greater flexibility in terms of accessing value and paying premiums. Permanent insurance offers substantial benefits when planning for an estate. This trade-off pays for itself in time and should be considered when purchasing insurance. Read more on whole life insurance.