Whole life insurance offers lifetime coverage and guarantees payment to beneficiaries upon the death of the insured.
This type of insurance includes a “cash value” feature, which acts as an accessible savings or investment fund in an emergency.
Premiums are generally higher than other types of life insurance but remain constant over time.
Whole life insurance is a type of life insurance that, upon the death of the insured, pays the beneficiary the sum of money stipulated in the policy. Unlike other life insurance, the payment is made after the death of the insured and not at the end of an agreed term.
In addition, it ensures that the amount of premiums will not change over time and that the death benefit is secure.
Whole life insurance has a feature called “cash value,” which you can use as a savings or investment component. This will allow you to withdraw some of the amounts you have deposited in premiums if you are facing an emergency.
Whole life insurance also allows you to accrue interest on the value of the policy, just as a savings account would. With this article, you will be able to know how it works, its benefits and what are the best whole life insurance policies.
How does whole life insurance work?
Whole life insurance guarantees, provided that you have maintained the payment of premiums, the total death benefit to the beneficiary; regardless of the total amount of such monthly payments accrued at the time of the death of the insured.
Of course, you have to meet the monthly insurance payments because, otherwise, the insurer will take part of your cash value (a percentage of the accumulated amount of your premium payments) to cover it.
Whole life insurance has several benefits:
- You’ll have lifetime coverage
- Premium amounts are maintained unless you want to increase your cash value
- The death benefit will be paid in full to the beneficiary
- Accumulate tax-free cash value
- You can withdraw your cash value before the policy expires
How much does whole life insurance cost?
The premiums for this insurance are more expensive than those for others. To determine how much you should pay for them and how often, insurance companies take into account the amount of the death benefit and the following characteristics:
- Age and gender
- Height and weight
- Current and past health status
- Family medical history
- Occupation and lifestyle
- Use of nicotine, marijuana, and other substances
- Credit score
- Criminal record
- Driving history, traffic violations, and DUI convictions
- Dangerous hobbies (such as skydiving)
Usually, young people with a healthy lifestyle qualify for cheaper premiums than older adults. Here’s an estimate of how much you could pay based on your age and gender with a $500,000 policy.
| Age | Annual payment for women | Men’s annual pay |
| 30 | $4,007 | $4,554 |
| 40 | $5,825 | $6,703 |
| 50 | $8,996 | $10,512 |
| 60 | $14,846 | $17,423 |
Remember that this is only a reference. To find out how much life insurance would cost you, you should contact your service provider.
You can also use life insurance calculators if you want to get an idea of what the amount of a policy would be that fits your profile and future planning.
Cash value of whole life insurance
Cash value is an account in which part of the premiums you pay for your whole life policy are accumulated. This means that while you meet your quotas, you are also creating an emergency fund that you can access.
The percentage that will go to this account will be determined by your insurance provider. It’s tax-free, like a 401(k) plan or IRA.
You can use this account to borrow against the policy, pay premiums, or withdraw funds in an emergency; Although there are insurers that have additional restrictions for this point.
Be careful when withdrawing because it is possible that this negatively impacts your life insurance. If you do not return the money on time, the amount you withdraw from your cash value account will be deducted from the policy you purchased.
For example, imagine that someone took out a $250,000 policy and at the time of death had a cumulative cash value of $80,000. If you never used the cash value account, your beneficiary will receive the $250,000.
However, if at any time you withdrew $20,000 from your cash value account and then died, that amount will be subtracted from the policy total. That is, now your beneficiary will receive $230,000 instead of the $250,000.
Note: The insurer will always keep the accumulated in the cash value account once the beneficiary has received the death benefit. Therefore, you will only be able to access this account before the whole life insurance policy is charged.
Whole Life Policy Types
Whole life insurance is divided depending on the form of payment:
- Periodic payment. The amount of premiums remains fixed over time. It is the most common method.
- Single premium. The entire policy is paid in advance. This method may incur tax commitments.
- Limited payment. Fewer premiums are paid for a limited time but at a higher cost.
- Modified. It charges low premiums at the beginning, but over time, the value of the premiums increases.
Best Whole Life Insurance Policies
Choosing a policy will depend on your priorities, future plans, and budget. Although there are many options, it is recommended that you first review the best alternatives on the market before deciding which life insurance to buy.