Whole Life Insurance Policies – What They Tell You

2007-03-08 10:33:40

( Insurance )



Your purchase life insurance for one important reason: to minimize the impact of untimely death on your family. You can choose either a whole life policy or a term life policy.

If you are still young, and your family is still trying to accumulate savings, a term life policy is probably more appropriate than a whole life assurance policy in your situation. The reason for that is term life insurance policies are much cheaper than whole life insurance policies, since term life insurance policies are pure insurance protection while whole life insurance policies give insurance protection plus a savings component.

Since whole life insurance policies promote savings, you may wonder why a term life policy is recommended to you in your young years instead of a life policy when in fact you are trying to accumulate savings. There are two factors here.

Accessibility. The savings that you accumulate in a life policy is locked in for several years (at least ten years) and is thus not immediately accessible when you need it in your early years. The money you save on interest premiums by buying a term life policy instead of a whole life assurance policy remains with you, ready for use anytime.

Savings Growth. Insurance companies are very conservative in investing the premiums you pay. You and other policyholders can thus expect that the rate of return earned on your whole life insurance policies will be low. In fact, you can probably make more money by investing the money yourself in less conservative investments.

The obvious advantage of whole life insurance policies is that you and your beneficiaries have a residual claim after the term expires – you have the cash value. In term life, you have nothing to expect once the term expires. The disadvantage of whole life insurance policies is the cost. Financial advisors do not all agree whether whole life is worth the added cost.

In the end, it will be up to you. Although much more expensive than term life insurance policies, whole life insurance policies give you the advantage of fiscal discipline. So if you’re young but have enough money to afford the substantial difference in premiums, you should consider buying a whole life assurance policy. Consider it even more if, in your honest evaluation, you are the type of person who would spend the premium differential rather than saving or investing it. The discipline of whole life policy may be just what you need.


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