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Pros and Cons of Permanent Whole Life Insurance

Life Insurance

Permanent whole life insurance is one of the most popular forms of insurance. Whole life insurance offers a lifelong death benefit as permanent insurance, unlike the temporary protection afforded by term insurance. Whole life insurance also offers these advantages and disadvantages:

Pros of Permanent Whole Life Insurance

  • Cash value. Unlike a term insurance policy, the premiums paid for a permanent whole life insurance policy also build up a cash value. That cash value builds up on a tax-deferred basis. That cash value can be used for a low interest loan, flexibility not available with term insurance policies.
  • Stable premium. Once a whole life policy is institute, the premiums remain the same for the life of the policy. Similarly, the death benefit also remains steady, so long as the premiums are paid. Permanent whole life insurance is favored by some insurance experts because the policyholder either gets the advantage of a low-interest loan or the death benefit for his or her next of kin.
  • Definite death benefit. The death benefit is guaranteed, so long as the premiums are paid. That means whenever the policyholder dies, the death benefit will be paid out, tax free, to the next of kin. Term life insurance includes a death benefit that is almost never paid out to the policyholder.

Cons of Permanent Whole Life Insurance

  • Expensive premium. Certainly compared to term insurance, the cost for permanent whole life insurance is much higher. That's because the premium pays not only for the death benefit, but funds the cash value, as well.
  • Limited investment options. Normally, permanent whole life insurance policies include a very conservative investment mechanism that cannot be controlled by the policyholder. Because of this, expert investors can normally get a better return on the money in the cash value of the policy.
  • Loans lower death benefit. While it is possible to get a low-interest low from your own permanent whole life insurance policy, the amount of the loan is deducted from the death benefit until the loan is repaid.
  • Cash value builds slowly. Permanent whole life insurance is a conservative investment vehicle attached to an insurance policy. The cash value takes several years to build up much value at all. Compared to other permanent insurance options, where the policyholder has more say in the investment choices, whole life will perform steadily, but never spectacularly.

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