The Advantages of Whole Life Insurance

What are the advantages of whole life insurance?

Many people shy away from whole life insurance policies because of the apparent high cost of premiums, without even thinking about the advantages of whole life insurance.

The Advantages of Whole Life Insurance

The biggest advantage is that the policy holds real cash value. It is very much like having money in the bank.

When you have a large savings account, you can use that account as collateral for loans. You can even make a withdrawal from your savings account if you need to. A whole life insurance policy works in much the same way. You are literally banking your money.

There are several factors that determine how much your cash value amount is worth at any given time. You cannot take out a $50,000 policy and expect to withdraw that same amount the next day. The cash value of your policy is based on the premiums you have paid.

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You're Insured, AND You're Saving!

Savings power is one of the main advantages of whole life insurance. The premiums are subject to the cost of insurance coverage, administration fees and the discretion of the board of directors. So, it is not exactly the same as a savings account where what you put in is what you can take out.

But, unlike a savings account, no matter how many premium payments you make, your policy will still pay out $50,000 at the time of your death. Your saving account may never reach this amount.

The insurance company hopes you will make more premium payments than the value of your policy, but many people never do. That is why insurance companies use the money you pay in to make high-yield investments, much the same way banks do.

Banks may get a little revenue from the interest on the loans they issue, but most of their profits come from other investments.

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Just as with your bank, you will very rarely be informed of how or where the insurance company invests your money. But whether the company makes a profit or a loss will not affect your policy. You are guaranteed the benefits described in the policy.

Start Young to Build Wealth

To reap the highest advantages of whole life insurance, one of the best whole life insurance tips is to buy your policy when you are young. If you have missed this boat, encourage your children to buy whole life insurance. Premiums never go up. If you lock in a good rate when you are young, you are making a good investment in your future.

There are many life insurance companies that specialize in insuring babies. They encourage parents and grandparents to purchase a policy for young children as an investment in the child's future. Once this low rate is locked, the child is guaranteed this rate will never increase.

(Some parents may think of this idea as distasteful, but read on to discover the advantages).

Some policies promise to double the coverage when the child reaches the age of 18. If you buy a $10,000 policy, that doubles to $20,000, without any rate increases.

Also, the policy cannot be canceled by the insurance company, regardless of the health of the child or their career choice. The owner of the policy may cash in the policy at any time, but as long as premiums are paid, the policy will remain in effect.

Ownership Resides With the Policy Holder, NOT the Insured

Note that the person who takes out the policy (in this case, the child's parent) holds the right to the policy and any funds built up, unless and until the policy is signed over at some stage. This is another of the advantages of whole life insurance.

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A parent of a drug-addicted young adult, for example, who had originally intended to gift them the insurance policy at a landmark birthday, may decide that it's more prudent to keep ownership of their policy until their child has been through rehab – or even use some of the accumulated funds to pay for that rehab.

Owners of policies could even withhold funds from a child, and pass the money onto a grandchild. Whole life insurance policies are a great way of passing wealth from one generation to another.

Average Price of Whole Life Premiums

Premiums are calculated on individual circumstances. Factors such as age, health, amount of coverage and type of policy are all taken into consideration.

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The premiums on policies for children are very low. The younger you are when you buy your policy, the lower the premiums will be. You can buy a $5,000 policy for a child under the age of one for less than $5 per month.

Considering the policy may double at the age of eighteen and the premiums never go up, this is a great gift to give a new baby. One of the advantages of whole life insurance for young children is the coverage is affordable to most families.

Whole life insurance is the most worry-free type of insurance because it can never be canceled.

With term insurance, the company can refuse to renew your policy at any time. If you become very ill or disabled and are unable to work, the insurance company could simply decline your request for insurance. Therefore, they would refuse to give you coverage.

The advantages of whole life insurance is that you are covered, no matter what happens. You can become disabled, lose your job or contract a chronic illness, and the company will not cancel your policy as long as the premiums are paid.

You are guaranteed the same low rate and the same face value of your policy up to the age of 100. After the age of 100, you are no longer required to pay any more premiums, but your policy remains in effect with the exact same face value. This continues to the age of 120. Not too many people live past 120, so you don't have to worry about not having coverage anymore.

Term vs Whole Life Insurance

The biggest difference between whole life insurance and term life insurance is that with a term policy, there is a greater chance the company will never have to pay a claim. Most people will buy a term policy for ten or 20 years, and then not renew anymore.

Usually the premiums on renewal are way too high. Most people have built up enough equity in their lives by this stage, too, so that they do not feel they need to be insured. The insurance company has collected premiums for twenty years and never has to pay out a dime.

With whole life insurance, the company always has to pay. If you decide you do not need life insurance anymore, then they have to pay out the cash value you have built up in your policy.

Each year you get older, the cost of term life insurance increases, because as you age, the likelihood that the insurance company has to pay a claim increases.

Insurance companies are more than happy to pay out claims; they have actuaries who use statistics to calculate the likelihood of payout and charge premiums accordingly.

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With whole life insurance, you are never paying into something without any chance of getting at least some of that money back.

When you look beyond the apparent high costs of premiums, you will quickly see that the advantages of whole life insurance far outweigh the costs.

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