When you did your due diligence and bought a life insurance policy, you had a whole slew of options to choose from. Not only did you need to educate yourself on the differences between term, convertible term, and whole life insurance, but you also had to shop around and decide where to get your policy from. You made the best decision for you and your family at the time and obtained a whole life insurance policy.
But now you may be wondering, “Is this still the best option? Are the high premiums worth it? Could I get better coverage through a different product?” Let’s break down how a whole life policy works so you can determine whether or not it is still right for you.
Whole life insurance, also called permanent life insurance, guarantees that your premiums (paid monthly or annually) will stay at the same rate for the rest of your life or for as long as you hold onto the policy, as opposed to term life policies, in which the premiums are only guaranteed for a set policy period (10-, 20-, or 30-year options). However, premiums for whole life policies are typically higher than those of term life, possibly 6 to 10 times higher. If you want a policy that will last for the rest of your life and you can find a reasonable rate, then whole life could be your answer. If you need a policy that has lower monthly payments, then you may need to consider term life policies.
The Benefit Amount
The benefit amount, also known as the death benefit, is what your policy is worth in dollar value and what your family will receive after your passing. Whole life, term life, and indexed universal life all have different benefit amounts to choose from, with options anywhere from a $50,000 policy to well over $1,000,000. Whichever policy you have or are considering, make sure the benefit amount is enough to take care of any remaining mortgage payments, tuition fees, ongoing medical costs, or other expenses your current income covers.
The Policy Structure
This is the crux of the whole life insurance model. The reason why the premiums are higher for whole life policies is that a portion of the premiums goes into a savings account created by your insurance company. The money in this account is guaranteed to grow at a slow and steady pace, as opposed to the market, which can rise up and down with gains or losses at a much faster rate. Contrary to what many people think, this savings account is not meant to be additional income outside of the policy benefit amount. It is actually meant to provide cash value to pay off the premium and provide for the benefit amount, as this policy is intended to last for more than 30 years. This is why the premiums of whole life policies are guaranteed for the entirety of your lifetime.
If you have an existing whole life policy (or have a quote for one) with a reasonable rate that fits into your budget, then keeping or moving forward with this policy will cover you for the rest of your days. If covering the higher premiums to make way for the savings account is putting your budget in the red every month, then moving to a term life policy could give you lower and more affordable payments for a similar death benefit.
Where Do You Go From Here?
When choosing a life insurance policy, be sure to educate yourself on what and who you need to protect and how much money you will need to do just that. Gather all your pertinent information and plug it into our online life insurance quote engine to compare quotes, see how the quoted premiums fit into your budget, and apply for the life insurance coverage that makes sense for your family.
And if you already have a whole life policy, it’s worth another look to make sure your money is working for you. If you want help evaluating your life insurance policy and coverage or want to
know more about protecting your assets, we at 1on1financial would love to be your unbiased source of advice. Call our office today at 909-981-1720 or simply click here to schedule a free 15-minute introductory phone call!
Philip A. Board MSFS, CFS, is a retirement planning specialist and the founder of 1on1financial, an independent comprehensive investment firm serving individuals and businesses throughout the United States. He is also the owner and CEO of Medi-cal Benefits.