Before you opt for a particular life insurance policy it is always better to get your facts right. You should be able to make out the specific differences between whole life insurance and term life insurance. So what is whole life insurance? To put it simply it is the same as term life insurance but comes with an extra benefit. The death benefit and the premium don’t vary a lot from term life insurance. However unlike the term insurance whole life insurance also builds up a cash value. This cash value is generated from the returns a company gets by investing a part of your premium. If you need you can borrow against this cash value.
What are the options available in whole life insurance?
Basically whole life insurance comes mainly in three categories:
- Traditional: The traditional whole life insurance gives you a guaranteed minimum rate of interest for the cash value that your policy has accumulated.
- Interest-sensitive: This option provides you with a variable rate of interest on your accumulated cash value and the rate is determined by market trends. Such a policy makes more sense than a traditional one as it gives you more flexibility. Here you get an option of increasing your death benefit without actually paying any extra on the premium if the market forces suit you.
- Single-premium: This is not an option for everyone and only people who enjoy a very strong financial position can go for this. It comes with the same facilities as other whole life insurance policies do, like the accrual of cash value with tax shelter.
Advantages over term life insurance
- Whole life insurance comes with its own set of benefits. First of all, you get a cash value which you can even use to pay off your premium at the later stages. A term insurance doesn’t provide you with that option.
- Again with whole life insurance the premium amount remains the same all throughout, that is if you don’t review your policy and make any alterations. It also means lesser hassles. Now you don’t need to go for a medical check-up every time you want to get a policy. A single medical exam covers you for your life.
Whole life insurance also makes sense for those who are looking for avenues to get tax savings.
Can whole life insurance be seen as an investment?
Many insurance agents try to sell whole life insurance policies saying they add up as an investment. But the professionals differ. Although these policies come with a cash value but generally the rate of interest on your cash value is so low it is always wiser to invest somewhere else. And this is true even after keeping the tax benefits in mind. So when should you opt for a whole life insurance. Well, when you are sure you need an insurance and not an investment. Then you can think about whole life insurance. You can compare it to term life insurance as it comes with an interest on your cash value and also tax benefits. But it is not an alternative for regular investments.
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