Life insurance can be categorized as either “whole life insurance” or “term life insurance”. Essentially, the difference is that whole life insurance is designed to provide coverage for the duration of policyholder’s life while term life insurance provides life for a specified period of the policyholder’s life.
In addition to providing coverage for a lifetime (or until the policyholder reaches 100), whole life insurance also builds up cash value over time. Coverage remains in effect for the policyholder as long as premiums continue to be paid.
For a whole life policy, the premium remains the same cost (in contrast to renewable policies where the price can change). The cash value of the policy is also guaranteed, therefore making it safer, but these policies require the whole of the premium to be paid in order to keep them active.
Whole life insurance is a good option to consider for individual long range financial planning. Whole life insurance brings security of permanent lifetime insurance protection coupled with the ability to cancel or surrender the policy at any time for cash. In addition, there are tax advantages to whole life insurance allowing policyholders to save money overtime on a tax deferred basis.
If you’re lucky, some whole life policies can even result in more money value than the amount promised. This is a result of changes in the market and rates of interest credit. For instance, these policies can change in value depending on the performance of the policy’s company. The difference between whole life and variable life policies is the lack of a guarantee of value. You can borrow against the value of your whole life policy, temporarily ‘cashing it in,’ as a loan. The value of whole life policies ideally compete fairly with other similar investments in fixed revenue.
The last attractive basic feature of whole life insurance one should consider, arguably the most valuable, is the opportunity to earn dividends. The dividends are set based on the overall return on its investments for the insurance company. While universal life insurance is often adjusted monthly, interest on whole life policy is adjusted annually.
You should not purchase whole life insurance if you cannot afford it or if there is a good chance that you may not be able to afford it in the future. It’s best, however, to purchase life insurance while you are still young. If term life insurance is all that you are able to afford, that’s better than no policy at all. The higher premiums found on whole life insurance are because they do cover you for the whole of your life; making it worth the higher costs if you are able to afford it. But whatever policy you choose, be sure that you can indeed afford it. Whole-life premiums will never change, and while this is good if you can afford it in the first place, if you cannot it can be very bad. Get life insurance, but get what you can afford. Any coverage is better than none at all.
Susan Reynolds is the webmaster for a leading South African Life Insurance provider. For more information visit: http://life.insurance123.co.za/