Otherwise known as whole of life assurance, whole life insurance is a policy that will withstand and remain for the insurer’s entire lifespan. This applies as long as the required premiums are paid and the contract terms between the insurer and the insured are met. Because this policy is a long-standing agreement, the premiums are generally higher than those tied to a term life insurance policy, which are fixed for a short term only. Before you attempt to decide which plan may work best for you, let’s talk about some of the advantages and disadvantages of this particular policy.
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Advantage: Lifelong Protection
Unlike term insurance, this option promises to insure you for the rest of your life. When you die, the insured amount will be paid to your selected beneficiaries from your death benefit.
Advantage: It Grows In Cash Value
If you’re looking to prioritise your savings in a new way, this could be the option for you. When you pay a premium, part of that goes toward the cash value segment of your policy, which then grows without being taxed. Pretty neat, right? Once you have accumulated enough cash, you can withdraw against your policy at a low-interest rate. This is how this type of policy can act as a personal piggy bank.
Advantage: Unaffected By The Market
When we look at the stock or property market, it ebbs and flows uncontrollably, which can cause massive angst for investors. However, with this policy, your investment will remain unaffected and even more so, continue to earn the same amount of interest set by your insurer.
Advantage: Acts As A Safety Net
A great feature of this policy is that you have the reigns to ‘living benefits’, which include tax-free withdrawals that can be made for larger expenses or to aid your retirement fund. When you die, your beneficiaries will have access to your death benefit, which acts as a fantastic safety net for them.
Disadvantage: Expensive
To invest in a policy such as this one, you have to be earning a considerable amount as it comes with a hefty price – somewhere between 5 to 10 times more than term life!
Disadvantage: Inflexible Compared To Other Policies
Unlike other policies, you aren’t able to adjust your premiums or your coverage if let’s say; your financial circumstances were to change for whatever reason. Committing to this policy would mean you would need to be completely confident in the future of the status of your income.
Disadvantage: Cash Value Can Take A While To Accumulate
In the beginning stages of taking out your policy, the majority of your premiums will go to paying the insurers fees and commissions and only a small percentage will add to your cash value. This means that it could take a considerable amount of time before you can start taking out loans against your policy – sometimes up to 15 years!
Disadvantage: Interest Charged On Loans
Unfortunately, taking out loans against your policy doesn’t come free of charge. You will be charged interest on loans withdrawn and if that money is not paid back by the time you die, cash will be taken from your death benefit and ultimately, your beneficiaries with receive less cash.
Taking the time to consult with your financial advisor is certainly beneficial when deciding what life policy to choose. If you qualify and have the suited lifestyle for a whole life insurance policy then it may indeed be an inviting option to consider. Like anything, it comes with risks so weigh up all the possible outcomes before investing in life. If after reading our list of pros and cons, you’re still unsure if this is the right path for you, get in touch with us and we can direct you toward making the best-fitted choice for your life.