Full life insurance, also known as whole life insurance, is a type of permanent life-insurance that provides coverage for your entire lifetime, as long as you continue to pay the premiums. Unlike term life insurance, which provides coverage for a specific period, whole life-insurance offers lifelong protection and includes a cash value component.
Here are the key details and features of whole life insurance:
- Coverage Duration: Whole life insurance provides coverage for your entire life, as long as you continue to pay the premiums. There is no expiration date as long as premiums are paid.
- Premiums: Premiums for whole life insurance are typically higher than those for term life-insurance. However, they remain level and do not increase as you age, making it more predictable and manageable over time.
- Death Benefit: In the event of your death, a death benefit is paid out to your beneficiaries. This benefit is generally income tax-free and can be used to cover funeral expenses, outstanding debts, and provide financial support to your loved ones.
- Cash Value: One of the unique features of whole life insurance is the cash value component. A portion of your premium payments goes into a cash value account, which grows over time on a tax-deferred basis. You can access this cash value through withdrawals or loans during your lifetime. Keep in mind that withdrawing or borrowing from the cash value can reduce the death benefit.
- Guaranteed Growth: The cash value of a whole life policy typically grows at a guaranteed minimum rate set by the insurance company. Some policies may also earn dividends, which can further enhance the cash value.
- Dividends: Participating whole life policies may pay dividends to policyholders. These dividends are not guaranteed and depend on the insurer’s financial performance and other factors. Policyholders can choose to receive dividends in cash, use them to reduce premiums, or reinvest them to increase the policy’s cash value and death benefit.
- Level Premiums: Premiums for whole life insurance remain constant throughout the life of the policy. This can be advantageous, especially as you age and the cost of term life insurance premiums may increase significantly.
- Estate Planning: Whole life insurance can be used as a tool for estate planning, as the death benefit can provide liquidity to cover estate taxes and other expenses.
- No Expiration: As long as you continue paying the premiums, your whole life insurance policy will remain in force, regardless of changes in your health or other circumstances.
- Policy Customization: Whole life-insurance policies often come with various customization options, allowing you to tailor the policy to your specific needs and financial goals.
It’s important to carefully review the terms, conditions, and costs associated with whole life insurance before purchasing a policy. Consulting with a financial advisor or insurance professional can help you determine if whole life-insurance is the right choice for your financial situation and goals.