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What are the benefits and drawbacks of whole life insurance?

Sunday, January 15th, 2012

Whole or permanent life insurance can provide lifelong coverage and protection, something that is not the case with term life insurance, which a lot of people go for. The only obvious flaw in permanent life insurance which acts as a deterrent is the fact that the cost of the insurance is higher compared to term life insurance. In other words, the premiums are likely to be higher in case of permanent life insurance. This is expected for two reasons. Firstly, there is a guaranteed death benefit payout in case of permanent life insurance which is not the case with term life insurance. Secondly, there is an investment component in the benefits, which is once again not the case with term life insurance.

Another drawback with permanent life insurance is that the approval process which includes medical examination is far more stringent in case of permanent life insurance. Your health history documentation is also thoroughly inspected before you qualify for this kind of insurance. However, there are plenty of benefits which are on offer too, making whole life insurance a very interesting prospect.

Firstly, the insurance is not just for coverage but also an investment that can provide immediate funds or cash surrender value when you cancel the policy. The cash from this policy isn’t considered as a taxable income by IRA, which means some of these policies provide tax free benefits. The cash value keeps accruing over a period of time, which means that you can use whole life insurance as a long term investment, which could be quite handy, combining investment and death benefits together. Moreover, the premium in case of whole life insurance is constant over the entire period, which is a big plus, considering that as one gets older, insurance providers hike the premiums.

One of the biggest advantages of whole life insurance is that your accruing cash value can further be invested in stocks, bonds or financial instruments, to make sure your savings are earning some more money for you. Therefore, permanent life insurance gives you the power of a life insurance as well as a steady investment for the long term future. Some types of permanent life insurance like variable and universal life insurance give you flexibility in terms of varying premiums and death benefits while also deciding where you want the cash value to be invested. You can even apply for loans on the cash value accruing in your account.

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