Permanent Whole Life Insurance

Whole life is a form of permanent insurance that is sometimes referred to as “cash value” life insurance because it includes a savings component. Unlike term life, whole life does not expire after a certain term, but remains in force as long as the insured pays the premium. The whole life death benefit is a tax-free sum paid to your beneficiaries.  

The savings component of whole life insurance is its defining feature. A portion of your annual premiums is placed into a savings account, and this cash earns interest. This cash value can be withdrawn from the policy, if desired, with certain caveats.

• It lasts your entire lifetime – as long as the insured pays the premium, the insurance policy remains in force. 
• Premiums stay level – typically, premiums in a whole life policy cannot be increased because you get older or get sick. 
• Forced savings – as mentioned, a portion of your premium payments gets set aside into a savings account that accrues interest from your insurance provider. 
• Guaranteed returns – most policies will carry a minimum growth rate, and your cash value is guaranteed, so your money is sheltered unlike riskier investments such as the stock market.

• It’s usually a more expensive option – whole life insurance is guaranteed for the life of the policyholder, and will be paid upon their death.  
• Policy abandonment – according to studies, almost a third of all whole life policies are surrendered within the first three years, and almost half are surrendered within the first 10 years. This is sometimes caused by people overestimating their ability to continually pay the premiums. Furthermore, if you surrender the policy within the first several years, your accumulated cash value will be relatively small, diminishing or eliminating return on investment from the savings component. 

Understanding your needs and what you hope to accomplish with your whole life policy will help you determine how much coverage is right for you. For example, if you don’t need the policy to support dependents, a relatively small policy can be sufficient for things like covering the costs of a funeral. If you have more complicated circumstances, or perhaps several dependents to provide for, a larger policy will be in order, but will naturally come with larger premiums. 

You should also understand the growth rate and investment return on the policy. While most policies will guarantee a minimum rate of growth, some can also offer dividends to increase the return on your cash value.  

Your policy may also include optional riders, which are features you can add to the policy at a certain cost. Riders add benefit provisions to the policy in the form of additional coverage. A few common examples of riders can include: 

• Chronic illness – provides early access to benefits for daily living expenses if you become disabled 
• Long-term care – provides coverage for long-term needs like a nursing home or at-home nursing assistance 
• Accelerated death – offers early access to benefits when diagnosed with terminal illness 

A knowledgeable and experienced agent can help you understand the benefits and implications of including optional riders onto your policy.