Whole of Life Insurance Cover: Your Guide
While a term life insurance policy lasts for a specific timeframe, a whole of life insurance policy lasts for the lifetime of the insured.
Therefore, a whole of life insurance policy will always pay out, providing beneficiaries with a lump sum of money.
Since a payment is guaranteed, whole of life coverage is more expensive than term life insurance.
However, it is a convenient way to provide surviving family members with money and it can be combined with other insurance, including a term policy, to cover specific debts.
How a Whole of Life Policy Works
The insurance company invests the monthly premiums paid for a whole of life plan. For the first ten years of the policy, premiums and coverage level do not increase. After that time, the insurance company reviews the plan and may increase the premiums.
Increases are typically made in five-year increments. As the insured ages, premiums may increase rather steeply. This could eventually make the coverage unaffordable for some people. Therefore, it is important to consider the financial impact of purchasing this coverage.
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A fixed premium option is available with whole of life insurance. Though the premium will not increase, it will be higher from the start. This concept is based on assumptions regarding growth in the value of the investment made using premium payments. If the fund performs poorly or related charges are increased, the premium may need to be increased to maintain the coverage level.
Whole of life premiums are based on the age, sex, and smoking status of the insured and the level of coverage. Older people will pay higher premiums than younger people. Women generally pay lower premiums because they tend to live longer. A nonsmoker, commonly defined as an individual who has not smoke in the past 12 months, will pay a lower premium than a smoker.
To prevent the cash benefit from being included in an estate and subject to inheritance tax, a whole of life policy must be written in a trust. Insurance companies provide this service at no charge or for a small fee. Individuals should seriously consider placing the policy into a trust because it may affect the overall value received from the estate. The policy payout can be used to pay for funeral expenses, final bills, the mortgage balance, and to maintain the lifestyle of beneficiaries.
Benefits of Whole of Life Coverage
A guaranteed lump sum payout is the major benefit of a whole of life policy. With a term life insurance plan, a payout occurs only if the insured dies within the stated period. Older people in poor health often choose a whole of life plan because it does not require a medical examination. Though they will pay higher premiums due to their age, their health status will not affect this figure.
This type of policy can be combined with other coverage like critical illness to protect the insured in life as well as death. However, a policy may only provide a single payout if death follows a diagnosis of critical illness, so consumers should inquire about this before purchasing coverage. Buying whole of life and critical illness policies separately may be a better decision because two payouts will be made if a critically ill insured dies.
What Are The Drawbacks?
Whole of life policy premiums are higher than term life premiums due to the guaranteed payout. If a policy is in place for a long time before the death of the insured, the premiums paid could exceed the monetary benefit. Therefore, though premiums will be less expensive for a younger insured, this individual may end up paying much more than the policy value if he or she has a long lifetime.
Most policies require premium payments until the insured reaches a specific age. This means that some individuals will pay premiums until their death. Failing to write this policy into a trust may delay the payout to beneficiaries and can substantially increase the inheritance tax that must be paid on the estate.
Considerations When Shopping for Whole of Life Plans
Since this insurance is also an investment, people should review the historical performance of the funds used by the insurance company. If performance was poor in the past, this may increase the likelihood of poor performance in the future. In some cases, an increase in the monthly premium may be required to maintain the coverage level.
If the plan features a fixed premium, the insured should inquire about the rate of investment growth used to calculate the policy premiums. A lower rate is viewed as positive because this is the minimum rate of growth required to maintain a given premium.
Comparing life insurance quotes from the top providers is just the beginning of the research required. Policy terms and conditions vary, so consumers should understand what their coverage includes, how premiums are calculated, whether or not premiums will increase, and if so, how often. Consumers can learn more by reading information on our site and reviewing the documents provided by the quoted insurance companies.
Is Whole of Life Coverage Right for You?
Life insurance coverage is a serious matter, so it is important to consider all the options. Whole of life coverage is suitable for a person who wants a guaranteed payout to beneficiaries and is willing to pay for it.
An individual who is older and has health issues may find this coverage more attractive than a term life policy because it does not feature a medical examination. Similar to term life, the lump sum benefit can be used for any purpose, including final expenses and funeral costs.
If you decide that whole of life coverage is suitable, fill out and submit the quote request form on our site. We will research the market to find the best policies and return these to you with quotes. After comparing the information, receiving answers to your questions from our experts, and selecting the best policy for your needs, apply for coverage so your family will be financially protected regardless of when you die.