Whole Life Insurance Explained Is It Right For You?
If you have decided that whole life insurance is the route you want to take, you need to be well-aware of both its pros and its cons.
Whole life insurance covers you for your entire life, as opposed to term life
insurance which only covers you for a certain number of years. Actually, whole
life insurance could be described as term life insurance with an investment
component. There are two elements involved with whole life insurancethe
mortality charge, which pays for the insurance coverage, and the investment
component, which earns interest and claims to act as a savings mechanism.
However, as the policyholder ages, the mortality charge increases and the
investment component decreases. Plus, the cash surrender value (which is the
amount you would get back if you cashed in your policy) is not always what it
appears to be. It fluctuates with markets, making its relation to reality a
difficult one.
With whole life insurance, not only are you paying for the cost of the
insurance, but you are also paying for the cost of investment. As you get older,
the cost of insurance coverage gets higher and the cost of investment gets
lower. If you decide to cash in your whole life insurance policy, you may be
paid in cash or in insurance that has been paid-up. Yet, with commission fees,
market fluctuations, and hypothetical numbers that agents use for illustration
purposes, it is not so easy to know how much you will cash in.
Still, there are many people who opt to purchase whole life insurance policies,
and for a good reason. Whole life insurance policies help them in estate
planning. By setting up an insurance trust through whole life insurance, they
can make sure the proceeds of their insurance policy are used to pay their
estate taxes. This is helpful, as estate taxes would otherwise be left to be
paid out-of-pocket by surviving family members.
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