Whole Life Insurance Guide
Finding the best whole life insurance policy isn’t as straightforward as it seems, but once you know the essentials, the entire process goes so much faster. Without a doubt, there’s no shortage of options; however, it’s pretty easy to get confused if you’ve never purchased whole life insurance. Starting out, you might have more questions than answers, so we’ll go over the essentials of whole life insurance in this short guide to show you what to expect before comparing quotes online.
Ultimately, you’ll find the right policy for your needs as long as you keep in mind the following tips. If you remember to do that, you’ll get the most value from a whole life insurance policy from start to finish. Now, let’s go over the primary differences between this type of policy and other forms of life insurance.
What's the most crucial difference between whole life and other forms of life insurance?
The main distinction between whole life insurance and other types is that whole life policies cover your whole lifespan, not only a specific period of time explained in the contract. The policy will remain active, provided you keep paying the monthly premiums on time until you need to file a claim, most often by your beneficiaries.
In other words, whole life insurance is the typical type of life insurance most people know about. You buy a policy, pay for the monthly premiums, and the policy pays out death benefits when you pass away. That’s the simple definition, yet there’s more nuance to whole life insurance than that.
For example, you can gain equity the more you pay into a whole life policy, and term life policies come with no such feature.
Either way, the general idea is that whole life insurance policies offer more financial flexibility than term life coverage, which can come with more exclusions than you might assume. Whole life insurance is by far the most comprehensive coverage you can find, even though it’s also more expensive.
Whole life insurance
As we touched upon above, term life insurance policies are valid throughout your life. Occasionally, you might see whole life insurance named universal life insurance, which essentially means the same thing, so when you see the two terms, try not to conflate the two and assume they’re different.
Nevertheless, the critical distinction is that term life policies come in five to ten-year increments, and whole life policies don’t come in increments. Furthermore, you can use whole life policies as investments, and you simply can’t do the same with term life policies. Not only that, but you can also “cash out” whole life insurance if you’ve paid enough into the coverage, which is yet another reason why some people prefer universal life coverage rather than limited coverage.
Term life insurance
Rather than cover your lifespan, term life insurance only protects you for a particular duration. Sometimes, term life policies are available in smaller increments than 5 to 10 years, but that’s not the norm in the industry. Most likely, you’ll top out at 20-30 years for these types of policies.
So, the question is this: why would someone choose term life when the whole life is preferable and comes with more features? The answer mainly boils down to the price of the policy and the financial flexibility you need. For instance, if you only need insurance to cover a temporary debt like a mortgage, then a whole life policy isn’t necessarily best for that situation. On the other hand, if you prefer comprehensive coverage regardless of circumstances that you can’t predict, whole life is the wiser option.
The idea is that insurance providers have to assess how risky it will be to protect you. If the likelihood is high that you’ll file a claim, carriers can deny you outright, or if they do offer a plan, it might be so expensive you can’t afford the monthly premiums. From the insurance company’s perspective, it’s all about a risk-reward analysis because the insurance company’s role is to protect you in the event of an unexpected death.
Insurance providers use all of this information to determine how risky it will be able to cover you. If they believe you're at a lower risk, you'll get the most favorable terms and death benefits; if they think you're at high risk, you'll inevitably have to pay more for coverage because it's more likely that you'll need to have a policy. It's this balance of risk versus reward that will decide if you qualify or not.
Also, whole life policies are active the moment you get approved, so if something should happen to you unexpectedly, you’re already covered. Term life policies may or may not pay out benefits unless you’ve paid your first monthly premium or paid into the policy for a specific period of time.
The most important thing to remember is understanding what's included and excluded in the terms, no matter what type of policies you eventually choose. Depending on how comprehensive the policy is, you may not be able to participate in certain risky activities to receive death benefits. It's usually something pro athletes have to agree to, but you might have to follow similar terms to get the best prices
All it takes to get started is a short health questionnaire and your basic contact information to start comparing quotes in one place. This way, you’ll get the best value at the best price, which isn’t necessarily easy to do when it comes to buying life insurance.