When you were young, purchasing an insurance policy that was just right for you was probably confusing and slightly overwhelming. As you got older, some of that confusion may have subsided, but insurance still seems like a lesson that you never truly stop learning.
If you have had term life insurance policies throughout your years, and it’s coming to an end, you have a couple of options: you can renew your old/current plan for another term, let your plan expire and go without life insurance, or you can switch to a whole life insurance policy. This is similar to a term policy, except it’s permanent and comes with no expiration dates.
This article is designed to help you understand more about what a whole life insurance policy is, and whether a whole life policy could be in your best interest.
What is a whole life insurance policy?
Again, a whole life policy is a permanent life insurance policy, meaning that it will cover you for the duration of your life. In addition to a whole life insurance policy, you also have a separate account called “cash value.” When the term “cash value” gets thrown abut, it means that there is a cash amount given to the policyowner whenever the policy is cancelled. It is only applicable to permanent life insurance policies, so this is something that cannot be applied to term life insurance.
Many insurance agents suggest whole life insurance policies because they will have you covered for life. In fact, they will even suggest that you cover your children by getting a policy for them, too. Others, like Dave Ramsey, believe that whole life insurance policies aren’t worth it. So, let’s get into the pros and cons of this policy, so that you understand both points of view.
Advantages to whole life policies as a senior
Here are some of the advantages for seniors who have a whole life insurance policy:
Whole life insurance will pay benefits regardless of when you pass away. This is true as long as your policy is still in force. As soon as you pass away, your beneficiaries will receive the policy’s death benefit.
You’ll have an easier time finding coverage. It’s hard to secure term life insurance when you’re at a certain age. This is because a lot of policies are 10 to 20-year terms, and when you reach that age, it’s harder to guarantee you’ll fulfill those policies. As long as your premiums are paid on time with your whole life policy, you shouldn’t have too difficult of a time getting accepted.
It builds cash value over time. Cash value is built within your policy when you pay your premium. By doing that, some of it goes into a savings account, and once you have enough, you can begin to borrow from that account.
Premiums are predictable. Premiums will always stay the same and never differ, meaning you know how much you will owe on it each month. This can be relieving to know, especially when you have other bills to pay with fluctuating payments.
Living benefits are accepted on whole life insurance. Let’s explain this in a little bit more depth: if you are considering whole life insurance, one of the reasons for this could be because you are critically injured or ill, you will need to become a caregiver, or you are at the point in which you need care for daily tasks. Whole life insurance offers living benefits, in which you can receive a part of your death benefit if/when you are diagnosed with an illness or injury, or it is deemed that you will be needing care.
To make this a little easier to understand, let’s set up an example: You have a $200,000 whole life policy with living benefits, and you were recently diagnosed with Stage 3 breast cancer. Upon contacting your carrier, you discover that you can receive $50,000 for treatment and care. This leaves you with $150,000 for your death benefit that will be disbursed to your beneficiaries.
You can do this with term life policies, but there’s something that you need to consider, and that is when your policy expires, your living benefits expire along with it. When your term ends, it’s possible that you will have to purchase separate plans that could cover a potential future illness.
You have control over your account. There are a lot of financial services you will sign with your insurance company in which you don’t have complete control over. Luckily, this isn’t the case for whole life insurance. In fact, it’s the opposite. When you sign a contract with your insurance company. You can access this account and use the money for anything you need.
It’s possible that you can receive dividends from your whole life insurance policy. You can receive dividends once per year, typically around the end of the year. You can expect dividends if the insurance company has paid off its fees and is deemed profitable. In this event, it will return payments to you, known as dividends. Not to mention, you will not be taxed on these dividends.
Disadvantages to whole life policies as a senior
Here are some of the disadvantages for seniors who have a whole life insurance policy:
It is expensive. And by this, we mean that there are cheaper options out there. Typically, the cheapest life insurance is term life insurance. And if you’re in great health, getting term life insurance may be the better option for you.
The cost of your whole life insurance policy is dependent upon a number of factors, so it’s hard to determine what you’re going to be paying until everything is finalized. This includes age, health, habits, how much coverage you need and more. One thing that you can bet on, though, is that your whole life policy will cost more than any term policy you would have had.
Loans require interest. Essentially, if you want your money out of the policy, you either have to cancel the policy or borrow your own money. And that requires interest. This may not sound like news to you because almost every loan out there comes with some sort of an interest fee. But when you think about it, this can present itself as a major disadvantage. You are being charged interest to borrow the money you paid into the policy.
It’s not the most flexible option. Once you select your coverage, it cannot be changed. This means that, your coverage will not be increased or decreased depending on what your needs are. Premiums are also adjustable. This means that if you are unsure about your financial future, this may not be the best option for you.
Your beneficiaries won’t receive everything. When you pass away, your beneficiary will only be receiving the death benefit, while the insurance company will receive the cash value. Your beneficiary cannot receive both. This may sound frustrating to most, and it’s with good reason. You are paying into a savings account that you don’t get to use unless you are borrowing from it. And, even then, we circle back to the interest fee that has been previously mentioned.
It’s not the best tool for retirement planning. Although you certainly can use parts of it – like the case value – for your retirement planning, it’s not in place so that you only have to rely on this policy. A great way to plan for your future is to invest your savings into your IRA accounts, as well as your 401(k) or 403(b).
Some don’t have the financial stability to maintain a whole life insurance policy. We understand that this sounds like a scary concept. And, unfortunately, it’s true. In the event that you experience financial catastrophe, and you are unable to pay your premium, your cash value will be able to cover it. However, your cash value is not designed to pay off your premiums, and it’s certainly not built to last forever. This means that, after a certain amount of time, if you are still unable to pay for your premiums and your cash value runs out, then your policy will disintegrate.
You may be coming away from this article thinking that you may need whole life insurance, or you may be thinking that you could never trust any insurance agent who will try to sell this to you. If you’re feeling the latter, don’t worry. At The Best Senior Services, we can help you. We will connect you with a local, licensed agent who will work with you on selecting the best policies for you.
Regardless, whether you should consider a whole life insurance policy is solely up to you because no one knows your situation like you do. If you meet with an agent who does not provide you with a specific way in which you will want to consider whole life insurance instead of term life insurance, then consider other options. The Best Senior Services will be happy to provide you information about financial services so that you can enjoy your retirement years. Call us at 855.979.8277 or visit our website today to get started.
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