Whole Life Insurance Definitions

Whole life insurance definitions. What is whole life insurance, what are the advantages of whole life insurance, and should you get them?

Define Whole Life Insurance

Whole Life Insurance is a type of insurance policy that offers you a permanent death benefit for life. You pay fixed premiums over your lifetime, and these premiums will accumulate in your tax-deferred insurance account.

Unlike term life insurance, whole life insurance offers an investment component. Whole life insurance policies offer death protection and will pay a lump sum to your beneficiaries should you pass away. At the same time, they offer you a tax-deferred account to accumulate cash investments.

Unlike term life insurance, whole life insurance policies last your entire lifetime. Thus, they provide a permanent form of protection for your dependents, while allowing you to build a cash account.

Advantages of Whole Life Insurance

Advantage of Whole Life Insurance 1: Tax-Deferred Savings

The main advantage of whole life insurance is that it has a tax-deferred savings account. You can borrow from this account without having to pay income taxes, or even cash-in the policy at any point in time.

Advantage of Whole Life Insurance 2: Wealth Accumulation

This form of tax-deferred cash accumulation makes whole life insurance a viable option for many personal finance purposes: wealth accumulation, asset protection, estate planning, tax reduction.

Advantage of Whole Life Insurance 3: Fixed Premiums

Premiums are also fixed; you do not need to worry about premiums increasing over your life time.

Disadvantages of Whole Life Insurance

However, the main disadvantage of whole life insurance is that you have no control over how your money will be invested. Your returns will be tied inextricably to your insurance company’s ability in investing its capital.

Premiums are inflexible, meaning that you cannot toggle payments or reschedule them in various ways to adjust your finances.

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