An Overview of Whole Life Insurance

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Just as term life insurance covers a specific period of time or term, whole life insurance covers the insured for their entire lifespan, or until they reach an advanced age, usually 100. At that point he or she receives the face value of the policy. If the policyholder dies before turning 100, as most people do, the beneficiaries receive the funds.

Whole life insurance also features an investment component but costs much more than term insurance. Brokers and agents like to sell whole life policies because they bring in extra fees and higher commissions. They like to emphasize the fact that these policies force you to save, but commissions eat up money you could be investing elsewhere. Another downside is the fact that no one can predict how well the investment will perform over time. It's also difficult to determine how much of the premium goes toward the investment and how much pays for the policy.

Despite these drawbacks, whole life insurance certainly has positive aspects. The tax advantages and the fact that you don't need to re-qualify as you age make it worth considering. Since coverage lasts a lifetime, there are no worries about future medical examinations. Also premiums remain the same, unlike those for term insurance, which increase as the insured ages or develops health problems.

Another plus is that with whole life insurance, you're able to collect the accumulated cash value should you cancel the policy. You may also borrow against that value, although it does take a number of years to build the cash reserve.

Before you purchase any type of life insurance policy, be sure to do your homework. There are many online resources that will help you understand what will work best for you. Because whole life insurance also provides an investment opportunity, you need to understand where your money is going and if you're getting good value. You'll also want to confirm that the company you buy insurance from has a good track record for paying claims and will still be in business 20, 30, or 50 years from now. Insurance company ratings are available from the major credit rating companies.