To begin with, you need to understand that life insurance falls into two broad categories: whole and term. The basic difference between term life insurance and whole life insurance is that a term policy is life-only coverage.
In a whole life insurance policy, as long as one continues to pay the premiums, the policy does not expire for life. As the term applies, whole life insurance provides coverage for life or until the person reaches age 100. Whole life insurance policies accumulate cash value (usually beginning after the first year). With Whole Life, you pay a fixed premium for life instead of the escalating premiums found on renewable term life insurance policies. In addition, whole life insurance has a cash value feature that is guaranteed. In term life and whole life insurance, the full premium must be paid to maintain the insurance.
With level premiums and the accumulation of cash values, whole life insurance is a good choice for long-term goals. In addition to permanent life insurance protection, whole life insurance has a savings component that allows you to accumulate cash value on a tax-deferred basis. The policyholder can terminate or surrender the whole life insurance policy at any time and receive the surrender value. Some whole life insurance policies may generate cash values in excess of the guaranteed amount, depending on credited interest rates and market performance. The cash values of whole life insurance policies can be affected by the future performance of a life insurance company. Unlike whole life policies, which have guaranteed cash values, variable life policies have cash values that are not guaranteed. You have the right to borrow against the cash value of your whole life insurance policy on a loan basis. Proponents of whole life insurance claim that the cash value of a life insurance policy should compete well with other fixed income investments.
Unlike term life insurance policies, whole life insurance offers a guaranteed minimum benefit at a premium that never changes. One of the most valuable benefits of a participating whole life policy is the ability to earn dividends. The insurance company based on the overall return of its investments fixes the profits on a whole life insurance policy. Also, while the interest paid on universal life insurance is often adjusted monthly, the interest on a whole life insurance policy is adjusted annually. Like many insurance products, whole life insurance offers many policy options.
Make sure you can budget for long-term whole life insurance and don't buy whole life insurance unless you can afford it. You should buy all the coverage you need now while you're younger, and if you can't afford whole life insurance, at least get term insurance. That's why whole life insurance policies have the highest premiums, it's insurance for your whole life, no matter when you die. The level premium and fixed death benefit make whole life insurance very attractive to some. Unlike some other types of permanent insurance, with whole life insurance you cannot reduce your premium payments.
