Is Whole Life Insurance a Good Idea?
Many people worry about their loved ones in the event of their passing. When consumers start families, they often begin looking for life insurance policies in order to protect their beneficiaries and secure the financial stability of their family. Insurance agencies offer two kinds of life insurance plans, term and whole life.
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Definition of Whole Life Insurance
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Whole life insurance combines life insurance with investments. With this type of insurance, you have both life insurance coverage to provide your beneficiary with in the event of your death and a monthly investment plan. Whole life insurance plans are purchased indefinitely, meaning that they do not expire after a period of time.
Fees
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With a whole life insurance plan, you will pay a monthly premium. A portion of this premium goes toward the life insurance aspect of the plan, while another portion is for investments. Typically, these investments come in the form of money market accounts, stocks or bonds. In addition to the monthly premium, you also will pay an up-front commission to the insurance agent for the policy. According to the SmartMoney websote, these commissions typically cost 100 percent of the premium for the first year.
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Advantages
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Availability is a major advantage to whole life insurance policies. Most consumers are eligible for the plan, regardless of age. You also may borrow against your whole life insurance policy and save for retirement at the same time. The mandatory investment aspect may be an advantage because it forces you to save for the future.
Disadvantages
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Whole life insurance policies are expensive and typically carry higher premiums than other forms of life insurance. Furthermore, there are high commissions and fees and you cannot tell what the return on your investment will be, according to SmartMoney magazine. State Farm Insurance explains that your whole life insurance policy death benefit will be reduced by the amount that you borrow, if any.
Term Life Insurance
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Term insurance, unlike whole life, provides life insurance coverage only, without an investment vehicle. Term insurance policies are set for specific periods, such as 20 years, and are payable in the event that the consumer passes away during the duration of the policy. Term life insurance coverage typically carries less expensive premiums than whole life polices.
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