Insurance

A whole life insurance quote is for your whole life, as opposed to term

life insurance, which is for a specific term, such as twenty or thirty

years. That is the primary benefit of whole life insurance: a payout is

guaranteed. You will not have to worry about becoming uninsurable later

in life, and unable to obtain life insurance of any kind.

This benefit of a guaranteed payout comes with a price: your premium

may be several times higher than the premium for a level term life

insurance policy of the same face amount. This is because a portion of

your whole life insurance premium goes to fund a tax-deferred cash

value account. And of course, you are buying the life insurance for a

longer time period: your whole life.

If you decide to cancel your whole life policy, you are entitled to

receive the cash value. Additionally, you may borrow against the cash

value at a reasonable interest rate. When you die, funds will be

deducted from the insurance proceeds to pay the amount of any loans and

interest, if you have not paid them off.

Which brings us to an interesting point. Whole life insurance policies

are actually issued with a termination date built in. This date is

usually on your 100th birthday. So, if you aren't dead by 100, the

policy is terminated and you are given the cash value. The cash value

on the termination date will be the face amount of the policy.

So, a whole life insurance policy is guaranteed to pay your beneficiary

the face amount if you die, or to pay you the face amount if you live

to age 100! Sounds like a good deal, huh? Well, it may be, but there is

a "lost opportunity" cost associated with tieing up your money (annual

premium payments) in a whole life insurance policy. You should consult

with your financial advisor.

Generally speaking, most financial advisors recommend to avoid this

"lost opportunity" cost by purchasing low cost term life insurance and

investing the difference in other investment vehicles. These

investments should be expected to provide a return higher than the

accumulation of cash value in a whole life insurance policy. Recently

however, CNBC got a different answer when they posed this question to

two financial heavyweights: Is whole life insurance a good investment?

It is often the case that a provider needs life insurance the most just

when he or she can afford it the least: when he or she has dependents

to support, provide for college, weddings, and so on. Then he or she

needs to build a nest egg for retirement. The goal is to have enough

invested by retirement that neither the provider nor the spouse needs

the life insurance proceeds to maintain lifestyle. Thus the saying,

"Buy term and invest the difference."

Whole life insurance is often useful in estate planning. It is one

vehicle used by financial planners to protect assets for the next

generation. So, if this is something that you may have to worry about,

you should consult with a financial advisor.