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Everybody needs some form of life insurance to protect their family financially. However, what few people know is how different insurance policies compare. Insurance salesmen keep throwing a lot of jargons and it can be hard to keep up.
To keep you on the loop, this post will highlight a few details you probably didn’t know about whole life insurance. For starters, whole life insurance is a type of permanent life insurance that’s designed to help you provide financial protection for your family or your chosen organizations in the event of your death.
The main difference between term life insurance policy (another type of permanent life insurance) and whole life insurance is that the former ends after a given number of years and offers only death benefits—nothing more. The latter has extra saving components but tend to cost more.
So, why should you opt for whole life insurance?
Well, here are the primary benefits that you stand to gain:
- Level Premiums: The premiums that you pay will seldom increase.
- Protection for Life: The policy doesn’t go down in value or expire.
- Grand Death Benefit: The amount that’s paid to your beneficiaries is guaranteed.
- Cash Value: Part of your premiums build a cash value, which you can always borrow against.
The Dark Side of Whole Life Insurance
Having highlighted a few benefits, let’s now cover some of the details that are often left out by many salesmen:
- The moment you buy this policy, you are contractually bound to contribute every year and you cannot waiver. If you default, the rest of your account value gets penalized.
- If you borrow or take money out of your investment, you are required to pay it back plus interest. If you fail to pay, you risk losing all of your investment.
- It is difficult to break even of your investment for the first 10 years considering that all the costs and fees that are associated with your investment. In fact, there are high chances that you will earn significantly less compared to other competing investment vehicles in the long term.
- When you decide to terminate your account or withdraw all the funds or need to access more money than your insurance company had anticipated, you will be required to pay income tax on every tax-free gain that you have ever taken from the investment.
- In case you die and there are funds in your account, your insurance company retains your investment.
As they say, the devil is in the details. The details of whole life insurance were created by insurance companies with a goal of managing the contract’s expectancy.
Bottom-line
There you have it; a few critical basics you need to know about whole life insurance. When you are considering purchasing this policy, strive to seek advice from experienced brokers who can put your interests ahead of everything else. The best brokers are those that are ready to answer all your questions concerning the policy and help you navigate the dynamic and puzzling landscape of life insurance.
