Why Buy Whole Life Insurance
Whole life insurance falls under the category of permanent life insurance. What that means is that the policy will remain in effect for your whole life as long as you continue to pay the premium. Different types of insurance vary in how they deal with the premiums, the amount of death benefit and any cash value.
When you buy a whole life insurance policy you are guaranteed the level of premium that you will pay. Usually, the premiums remain the same for the life of the policy. This is both a benefit and a disadvantage. On the benefit side, you don't have to worry about increasing premiums as you age or if you develop health problems. On the disadvantage side, the premiums are usually quite high at the beginning.
The amount of the death benefit in a whole life policy is also guaranteed in the contract. While dividends may increase the death benefit of some policies, the amount the dividends may contribute is not guaranteed.
The cash value of a whole life insurance policy is also guaranteed at the beginning. The cash value increases the longer you have the policy. In the early years it does not amount to very much, but in the long run this can become a significant amount. That's the nice thing about whole life policies. You know exactly what you are going to get in exchange for a known premium. There should be no surprises. Before you commit, be sure that you understand clearly what is guaranteed in the specific whole life insurance policy you have chosen. One question you must always ask is, "What happens if I can't make the payments?" Usually, "non-forfeiture" options are spelled out in the policy. This means that you will know up front what happens if you miss payments. You should also ask what options you have if you decide you no longer want the policy. Will you be able to get any cash if you cancel? If you are concerned about the high premiums, one way you may be able to reduce the cost is by getting your insurance as part of a group, most often at work. If you do get insurance through work, be sure you check what happens if you leave the employer. Can you continue to get the same rate or convert to an individual policy? Is there any guarantee that you will be able to get a good rate or will you have to accept the rates that apply to your age and state of health at that time? Remember, purchasing any type of insurance is a financial decision. You will always face the dilemma that the best rates are available to you when you are young and in good health. That's usually also when you have the least resources to pay! Weigh the pros and cons carefully.
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