The Quick Answer
Whole life insurance is a life insurance that continues to cover a policy holder and protect their beneficiaries as long as they pay their premiums. Here are some of the advantages of whole life insurance:
- Whole life insurance accumulates a cash value which can be used if need be to pull a loan out against a policy holder’s policy
- As long as you pay your premiums, your life insurance will cover you for life and not end at a predetermined time like term life insurance
- The cash value and growth of your whole life insurance is tax deferred
- In the event of a policy holder’s death a death benefit will be paid out to their beneficiaries
Definition of whole life insurance
Whole life insurance is a type of life insurance that you can potentially have for life. That is, as long as you pay your premiums you will be covered. This is one of the biggest advantages of whole life insurance over term life insurance.
How does whole life insurance work?
Whole life insurance accumulates a cash value amount that can grow over time and the growth is tax deferred. Meaning your money will grow and you will not pay taxes for that growth.
If a whole life policy holder maintains payment of their premiums and passes away. The total cash value that they accrued will be paid as a death benefit to their beneficiaries.
What is the cash value in whole life insurance?
Another one of whole life insurance advantages is the leverage you have over the cash amount. Besides having peace of mind that your beneficiaries will be covered if you pass away, you may also pull out loans against your life insurance. However, loans do have an impact on the total death benefit paid to your beneficiaries. A policyholder may also be charged taxes if their policy ends before the policy holder’s death.
How much does whole life insurance cost
When compared to term life insurance a whole life insurance plan premium is much higher. This is due to the fact that you build a cash value on your life insurance plan. Unlike term insurance where you simply pay a premium and you are covered for a certain length of time and only receive peace of mind. That cash value is beneficial because you can pull out loans against your policy if needed. Whole life insurance just like term life insurance, is cheaper the younger and healthier you are.