The Differing Types of Life Insurance Pt 3 (The Whole Life Talk)

Now that we understand from the last two posts that term life insurance is "temporary" and only covers us for the term of the policy, we should take a look at one of the permanent types of life insurance, whole life.

As the name implies, it covers you for your whole life, or better yet, the remainder of your life. In most cases, you can continue to keep your policy as long as you keep paying the premiums. On the other hand, there are policies out there that allow you to pay up early. For example, with a 10-pay policy you could make premium payments for 10 years and be done. At that point you no longer have to make payments. 

Unlike term life, whole life does build some cash value, which you can borrow against when needed or just cash out. I've actually heard agents to use a whole life plan as a savings or retirement plan, and it can be done, but be aware that most whole life plans' "growth engine" is merely the insurance carrier's investments. (In my opinion, this isn't the most efficient way to fund retirement or college planning, for that matter)

When you are in the process of purchasing a policy, the agent is required to show you an illustration with a ledger. This ledger shows, per insurance commissions, required numbers, such as guaranteed minimums, but will also show what the company's projections for your policy over 5, 10 or 20 years. 

Another thing to consider is the type of company you're buying from. Is it stock held or a mutual company? If it's a stock held company, which many are, the profits will go to the shareholders in the form of dividends. But if it's a true mutual company, then the profits will go back into the policy, either as dividends or to offset your premiums. With this in mind, your cash value accumulation can grow much faster with a mutual company. And just because a company has the word "mutual" in their name, it may not be. Several companies over the years have "de-mutualized". Do your homework or ask the agent.

Most final expense plans that you see advertised on TV are basically whole life plans and can be very expensive due to their "guaranteed issue" provisions, which means there are no health questions. There is typically a caveat for these policies. Some won't pay a death benefit in the first two years. Ask your agent if this is the case. 

I personally think that if you're in good health, a better option for final expenses is a Guaranteed Universal life policy, which we'll discuss in the next post. 

In the meantime, stay indoors, stay healthy and as usual, if you have questions or comments, please leave them in the comments section. And feel free to stop by our website, check out the product videos and set an appointment for a phone call to answer any questions you may have.

Chris Castanes is the president of Surf Financial Brokers, helping people find affordable life and disability insurance coverage. He's also is a professional speaker helping sales people be more productive and efficient and has spoken to professional and civic organizations throughout the Southeast. And please subscribe to this blog!