Whole life insurance can often be a beneficial option for a young, affluent couple in their thirties who have children. This is a good choice in many cases because of the benefits one can gain from taking out a whole life insurance policy. Unfortunately, though, whole life insurance also has some drawbacks, and as such, it is important to understand the pros and the cons of this option.
What Is Whole Life Insurance?
People who don’t have children or dependents and who are young and single often don’t need life insurance at all yet. After all, the reason to get life insurance is to make sure your dependents will be taken care of in the event of your death. However, everyone is different, and life insurance can sometimes be necessary in this case, depending on an individual’s specific needs. For example, someone who has had their parents co-sign on their student loans may need life insurance, even if they do not have a family of their own.
Whole life insurance is a policy that pays a benefit upon the death of the insured individual, much like most other types of insurance. This particular option, though, also accumulates a cash value that the insured and their family can access while they are still alive.
The Pros of Whole Life Insurance
Naturally, one of the biggest pros is being able to access the cash value of the insurance policy while the insured is still living. Many people use this option to help them save for their retirement, or they might decide to periodically take out loans against the amount. This is a great option that most other types of insurance policies don’t offer.
Some of the other pros of getting whole life insurance are as follows:
- The premiums for your insurance policy are fixed.
- If you decide to take out term life insurance, you pay the premium for a specific amount of time, usually a few decades. However, the premium will often change over time. Whole life insurance is a type of permanent insurance, which means the premiums are fixed and will not change over time.
- You get the money you were promised, even if you stop paying your premiums.
- If you have been paying your premiums for the agreed upon amount of time, you will receive your cash value even if you stop paying them. This is an important thing to remember, as it will help you stay on track with your payments when you know a reward is awaiting you.
- The money is tax-deferred.
- The cash value you receive with a whole life insurance policy is tax-deferred, meaning you can pay the applicable taxes at a later date.
- You have a guaranteed investment return.
- When you choose to play the stock market or do something else with your money that doesn’t guarantee a return, there’s always a possibility that you could lose it. With whole life insurance, you know you will receive some kind of return.
The Cons of Whole Life Insurance
Unfortunately, just like with every other type of policy, there are drawbacks associated with whole life insurance. For one, it is usually a more beneficial option for those who already have money. Some of the other cons include:
- The returns of your investment are not high.
- Though you will receive a guaranteed return, these returns are usually mediocre at best.
- Premiums are expensive.
- Though premiums for a whole life insurance policy are fixed, they are usually rather high, sometimes 10 times as high as those associated with term insurance policies. This is one reason why only those who are already considerably affluent can often benefit from them.
- The insurance agency usually charges a high commission fee.
- Because you’re guaranteed to receive some sort of investment return, insurance agents usually charge higher commission fees on whole life insurance policies, meaning a large amount of your money will go to them.
In addition, understanding the nuances of a whole life insurance policy can be difficult. Because these policies are so complicated, many insurance agents may attempt to talk their customers into buying them. It is important to do a lot of research if you are considering getting a whole life insurance policy of your own.