For many people looking to purchase a life insurance policy, the initial steps in doing so can be confusing and difficult. The following is designed to educate the first-time life insurance buyer on one of the two basic types of life insurance, whole life insurance.
Whole Life vs. Term Life Insurance
Besides a whole life insurance policy, the other main form of life insurance policy is called term life insurance. Term life insurance is relatively easy to understand as it works much like any other form of insurance in that a subscriber pays a premium and is in turn covered by the terms of the insurance policy for a specific amount of insurance.
A whole life insurance policy, however, can be any number of arrangements or plans worked out with an insurance company but that all perform the same basic function. A whole life insurance policy can be more difficult to understand than a term life policy.
Insurance + Investment
With a whole life insurance policy a person’s insurance provider uses a percentage of the person’s paid premium to use as an investment tool in an investment portfolio. For these forms of whole life insurance policies, premiums are typically higher than they are for a term life policy as
to allow the insurance company to invest the excess money into an investment plan.
Whole life insurance plans therefore offer both coverage of life insurance plus an investment of your premium rates. For an example, if a person who had a term life insurance plan and that plan cost one hundred dollars in premiums every month, but then that person wanted to switch to a whole life policy they would have to pay one hundred and thirty dollars with the excess amount of thirty dollars being invested in different investment options determined by financial professionals.
How Does it Work If you Need It?
In the event of death for our example whole life policy holder, the whole life policy would pay out the predetermined ten thousand dollars (the amount used as the example pay out for the term life policy holder in before they switched to a whole life policy) plus whatever money had been made from the investments of the excess thirty dollars over the years. These investment profits can also be taken out by the policy holder during the course of life.
However, the withdrawn profits are then required to be paid back with interest by the policy holder. This factor of having to pay back one’s own investment profits with interest causes most whole life policy holders to think twice before borrowing against their whole life investment profits.
To determine which type of coverage is best for you and your family, consider your situation and which would be more beneficial in the event of death. To answer any remaining questions you may have concerning both term and whole life insurance policies, come into any of our Utah Check City locations and visit with the representative of Insure Utah. They will be able to answer all of your life insurance questions and recommend a policy that will best suit your needs.