According to the LIMRA 2020 Insurance Barometer, 54% of all people in America have life insurance. Whole life insurance can provide the protection you and your family require. You don't have to worry about coverage length or renewal because your whole life protects you for your entire lifetime if you pay your premiums. It also accumulates value over time, allowing you to use it while you're still living. There are, however, some pros and cons of whole life Insurance you must consider that should be weighed before you take out a policy.
Compared to term life insurance, there are several pros of whole life insurance for people looking for lifelong protection. These include:
As long as you keep up with your payments, your whole life policy will remain in force until you die. This can provide great peace of mind for policyholders and their loved ones. In addition, whole life insurance policies do not require a medical exam to qualify which is one of the pros of whole life insurance.
When you pay a higher price, part of the payment goes toward your policy's cash value component— taxed deferred. You may borrow against your policy once you've built up enough cash value. The interest rates are usually low, and you won't be penalized for taking a loan. As a result, whole life insurance serves as an emergency fund and provides death benefits.
Your policy will not expire as long as you continue to pay your premiums. Even if you acquire a health issue that would make obtaining an insurance policy difficult, you won't have to reapply.
Whole life insurance is similar to permanent life insurance in that it has a set premium that will never change. This makes budgeting easier - an essential aspect to consider since you'll be paying that premium for the rest of your life.
Your death benefit is the same regardless of how much you pay in premiums. It's a comfort to know that your loved ones will be able to pay bills, bury you, cover the mortgage, or invest in anything else they need after your passing.
Whole life insurance provides total coverage and cash for the rest of your life, but it may be more complex and expensive than consumers want. Here are some cons of whole life insurance to consider.
Whole life is more expensive per dollar than similarly sized term life insurance. If you need a lot of coverage, purchasing term life rather than whole life might be smarter to keep your premium payments low. Final expense insurance is a smaller whole-life policy that's quite inexpensive if you only require enough to pay funeral expenses or leave a little inheritance.
The main purpose of insurance is to provide death benefits to your loved ones upon your passing. Whole life does that, but the cash value aspect makes it more complex than term life. Before buying a policy, you may want to consider working with a financial advisor to understand how whole life insurance works fully.
The cash value in whole life insurance grows slowly at first and only picks up speed after about 10 years. If you're looking for immediate cash value growth, you'll be better off with another investment, such as a mutual fund.
Historically, the returns on whole life cash values have been lower than other investments like stocks and mutual funds. However, they have been more stable, which may appeal to risk-averse investors. In many cases, you may have to face such cons of whole life insurance.
You might not need life insurance if you're young and healthy with no dependents. Once you have kids or a mortgage, you'll want to ensure they're taken care of financially if something happens to you. If you're single and debt-free, your loved ones won't be left with any financial burden after your death.
The corollary to whole life being more expensive is that, compared to a term policy, whatever amount you spend on insurance will buy you a far lower death benefit. So, if you require a lot of insurance—as may be the case if you have a young family reliant on your income—your whole life may not be enough to offer adequate protection.
Conclusion on the pros and cons of Whole Life Insurance
Whole life insurance is more expensive than term life insurance, so the amount of money your death benefit will be lower. It's for the rest of your life, so you don't have to worry about running out. If you require greater protection earlier in life, such as for a growing family, the term might be a better option. Buying a whole life policy may be worth it if you want to leave a legacy for your heirs.
Whole life is more costly than term insurance and frequently more pricey than universal life insurance. Whole life is a long-term investment, and it may take years to accumulate your cash value.
Unless you require permanent life insurance coverage, whole life insurance is typically a poor investment. If you've already used up all your retirement accounts and have a diversified portfolio, whole life insurance could be a smart investment if you want lifelong coverage.
Whole life insurance pays out a death benefit, which is paid to your beneficiaries after your death. Whole life coverage only lasts for a set number of years, whereas whole life insurance covers you for the rest of your life—if you can keep up with the premium payments. Whole life premiums may cost five to 15 times more than term policies with the same death benefit, so they may not be affordable for budget-conscious consumers.
Whole life insurance may appear too good to be true, but there isn't much of a catch. The major disadvantage of your whole life is that it will most likely cost you more money. Furthermore, as opposed to other sorts of investments, whole life insurance offers poorer interest rates.