Benefits of Whole Life Insurance

Posted by Insurance Advice on November 20th, 2007 at 09:12am

Life insurance is probably one of the most common types of insurance and is also one of the most important. Whole life insurance is a type of life insurance and its main aim is to provide death benefits to the beneficiaries. There are different ways and clauses in Whole life insurance, which defines the death benefit or payout. Every insurance company has their own Whole life insurance policy and the policy may differ from company to company.

Life insurance policy in general is of three types:

Whole life insurance
Term life insurance
Flexible insurance

There are many people who often find it difficult to choose between a whole life insurance policy and a term life insurance. There’s a margin of difference although the benefits of both the policies are almost similar.

photo credit: YeOleImposter, Flickr

The whole life insurance policy can provide protection for your whole life. This type of insurance is also known as permanent insurance or even ordinary insurance. If a person purchases a whole life insurance policy then it will provide protection through the life span of the insured. For example: if Andy purchased a whole life insurance policy at the age of 35 and if he dies at the age of 85 then the policy will cover him for that period of 50 years.

In a whole life insurance policy, you will be able to accumulate a higher cash value through the life of the policy and the cash value is guaranteed to the insured or the policy owner. If the insured or the policy owner wants to cancel the policy at any point in time then they can do so. The benefit is that the policy owner will be able to get the cash value available at that point in time in the policy.

Another underlying advantage of purchasing a whole life insurance policy is that as a policy owner you can borrow against the accumulated cash value in your policy. If the policy owner is unable to pay back the loan then the loan amount will be deducted from the cash value of the policy. This deduction will be seen as a withdrawal.

Let’s look at an example. If a whole life insurance policy owner dies and the cash value accumulated on his/her policy is $60,000 and has previously taken a loan of $3,000 against the policy and if the loan has not been paid then the death benefit payable will be $57,000. But on the other hand, if the insured had put in $3,000 back in the policy then the payout to the beneficiaries will be $60,000.

The death benefits of a whole life insurance policy make it one of the most bought life insurance policy the world over.