Life insurance gives you and your family a blanket of security. It will provide financial protection for the people you care about even when you’ve already passed away. In addition, it serves as an integral component of an overall, well-developed financial plan. The question is, what type of life cover should you get?

The answer depends on many different factors, but know that a whole life insurance policy, also known as permanent cover, provides quite a number of benefits: a lump sum death benefit, plus an investment vehicle. And while policies differ as a whole, they still work in a similar structure, regardless of your location. In short, a policy sold in the State of Illinois works almost the same as one purchased in South Carolina.

Contents

Whole Life’s highlights

To paint a picture of what you can expect when you purchase this particular type of coverage, take a look at its key components:

  • You are insured for life, which means your beneficiaries will receive the death benefit as long as you have paid your premiums.

  • The death benefit and premiums are constant, so you don’t have to worry about paying more as you age.

  • It has a cash value or savings component, which you can take out money from or borrow against and use for other necessary expenses.

How it works

Whole life insurance, at its core, insures you and builds cash value in exchange for monthly premiums. The insurance portion of the policy will pay the agreed-upon amount (the value or coverage you purchased, for instance, $200,000) when you pass away. The investment aspect, on the other hand, accumulates money over the duration of the term, and after some time, you can withdraw money from or borrow against it.

Features

Whole life insurance, although associated with higher premiums, has a longer list of benefits than the more straightforward term life insurance.

First and foremost are the fixed death benefit and premiums. They remain the same for the entire life of the contract. This means that when you purchase a plan while you’re still young, you’ll pay for the same lower premiums even when you get older. Your dependents will also know the amount of proceeds they can expect.

Then there’s the cash savings component. The reason permanent life coverage costs more than term is because your insurer will take out a portion of your premiums and put it in a savings account. This’ll then start to build up over the years, and once it has accumulated enough, you can withdraw funds from or borrow against it. You’ll find this really helpful in cases of emergency or if you need money to pay for your (or your child’s) schooling.

And last, but not the least, is the policy’s guaranteed rate of return on cash value. Regardless of how much money has accumulated in your plan’s savings account, you can expect it to earn interest for as long as you don’t touch it.

Four forms of Permanent Life Cover

When you opt for permanent coverage, you’d have to choose among its four different forms. Take a look at their key differences.

  • Ordinary (Whole) Life – The most common type of permanent cover, it features a death benefit combined with a cash value component. Your premiums go toward an agreed-upon amount of payout and the savings account.

  • Universal (Adjustable) Life – More flexible than ordinary life, the death benefit may go up depending on the outcome of a medical examination. Your insurer may agree with changes to your premiums, as long as your savings account has built sufficient amounts to cover the difference.

  • Variable Life – This is similar to a whole life, except you can put the savings component in various investment vehicles.

  • Variable-Universal Life – This is basically a combination of the universal life and the variable life plans.

The verdict: Is Whole Life right for you?

Whole life insurance might just be the right choice for you if you want something that guarantees to provide your dependents with financial assistance while also giving you an extra source of funds.

To learn how to file a life insurance claim, read this article.

References:

http://money.cnn.com/retirement/guide/insurance_life.moneymag/index4.htm?iid=EL

http://www.iii.org/article/what-are-different-types-permanent-life-insurance-policies