Whole Life

Whole life insurance offers a specified permanent death benefit at a level guaranteed premium. Due to the lifetime benefit and guarantees inherent in whole life, it often has a premium that is considerably higher than other types of coverage. The premium is not flexible and must be paid in full and on time or the policy can risk lapse (cancellation for non-payment of premiums). It builds tax deferred cash value, often earning between 2-4% interest depending on the terms of the contract and the financial strength of the insurer. In years with positive claims experience, Whole Life can pay a dividend, which is where the carrier returns a portion of the overcharged guaranteed premium to the policy owner. Some carriers quote their dividend rate as an interest rate credited to the policy, but unfortunately that can be misleading as it is really a return of overcharged premium, not additional interest. While dividends are common they are not guaranteed and can fluctuate over the life of the policy. If the dividends are large enough in the future, a policy owner can allow the dividends to pay the premium, instead of paying out of pocket. Over time the cash value can be accessed via loans. Some carriers have more favorable loan terms than others. The higher premium needed for Whole Life can make it challenging to afford the full amount of death benefit protection desired. Whole life is best suited for policy owners who can afford to pay larger premiums in any economic condition.

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