Benefits and Drawbacks of Whole Life Insurance

According to the American Council of Life Insurers, permanent life insurance currently accounts for 60.7% of all individual policy sales in the United States, making it the most popular kind of life insurance.
Traditional whole life insurance is the most widely used type of permanent life insurance available.

In addition to offering your heirs a death benefit, whole life insurance has a cash value component that you can use for other purposes. It usually costs more than term life insurance, though.

Whole Life Insurance: What Is It?
Whole life insurance can protect you for the duration of your life, as the name implies. Term life insurance, on the other hand, provides coverage for a certain amount of time, such 10, 20, or 30 years. You must get new coverage if, at the conclusion of the term, you still require life insurance.

Cost is another significant distinction between whole life and term life insurance, with term plans being significantly less expensive. This implies that for the same sum of money, you may get a term policy with a significantly higher death benefit. Therefore, even though permanent life insurance makes up 60.7% of individual life insurance policies, it only accounts for 29.5% of the face value of all new policies.

Whole life insurance also includes a savings component, called its cash value, which contributes to its higher cost compared to term insurance. Similar to a term policy, a portion of your fixed yearly payment is used to purchase insurance, while another portion is placed into a reserve account that will increase in value and generate interest.

If you want to give up, or surrender, your policy, you can withdraw the funds or take out a loan against the cash value. In contrast, a term policy only pays you a benefit if you pass away within the predetermined time frame; it has no monetary value.

Comparing Whole Life with Other Permanent Insurance Types
Three more significant types of permanent life insurance, in addition to typical whole life, each have both an insurance and a savings component. Among them are:

Universal life: You can change the death benefit of a universal life insurance, which will have an impact on your premiums. A policyholder could, for instance, choose to get a universal life insurance with a relatively low death benefit at first, raise it as their family expands and their income increases, and then decrease it once their children are self-sufficient.

Variable life: You have more discretion over how your cash value is invested with a variable life policy, usually by selecting from a portfolio of mutual funds. (In the case of a whole life policy, such investment choices are made by the insurance company.) Depending on the performance of your assets, your policy’s cash value and death benefit may change.
variable universal life: Lastly, a hybrid, or universal and variable policy, is a variable universal life policy. Similar to a universal life policy, it gives policyholders the ability to modify their death benefit and, like a variable policy, to decide how to invest their cash value.