Whole Life Insurance Vs Final Expense Insurance
Whole life insurance, also known as “pure life” or “straight life” insurance, can be defined as a life insurance policy that is designed to provide coverage throughout one’s lifetime and may be paid through any amount of premium paid. Usually, this type of insurance policy provides the most comprehensive policy available with respect to a person’s needs. However, while it does pay out to the end of the insured’s life and may often be the most affordable option, it has some drawbacks that should be considered. These include:
First, whole life insurance is usually purchased using a cash value account. Typically, the insurer pays interest on the cash value portion of the policy and may also require payments to the named beneficiary every so often. Although the beneficiaries will receive payment from the insurer in the case of a death, they may also be forced to dip into their own cash reserves to pay the premiums. Most insurance companies allow for the use of investment vehicles to supplement the cash value portion of the policy. This can include an investment in a mutual fund, stocks, bonds, certificates of deposit (or other investment vehicles) or other similar arrangements.
Second, the premiums for whole life insurance policies are very high. As a result, they will attract very high returns. The returns may take many years to pay off, meaning that the premium payment will be a substantial upfront cost that will have to be repaid. Some people will choose to pay into the policy as long as they can afford it and then make payments as the years go by. Others will want to pay the premiums as soon as they reach a point where the money makes it possible without compromising their lifestyle.
Third, whole life insurance policies typically only offer two different types of coverage. These policies generally either offer whole life coverage or term coverage. Term coverage is usually less expensive than whole life insurance policies because it is less expensive to obtain. In exchange, the premiums paid increase significantly over time. However, whole life policies continue to provide an death benefit no matter what age you reach. Therefore, many young people purchase universal life insurance policies in order to cover themselves during their college years and then continue making premium payments as they enter their later years.
Another disadvantage to whole life insurance policies is that once you reach a certain age, the premiums become increasingly more expensive to maintain. The premium payments also become much higher as you approach the age of 60. In order to keep your premiums at a reasonable rate, many whole life insurance recipients elect to pay the premium for as long as possible. For example, some people may have paid the whole life insurance premium for twenty years and then stopped making premiums, but they probably would have paid more had they continued the coverage for another twenty years.
As you can see, both whole life insurance and term life insurance provide insurance coverage, but they do so in different ways. Before purchasing either type of policy, consumers should compare the specific coverage options. This means comparing permanent policies with term policies. Both types of coverage are very similar, but permanent policies pay a death benefit to the beneficiary, while term policies only pay a benefit if the beneficiary has not been deceased before the policy’s date of expiration. If you are looking for permanent coverage, you should consider taking out universal life policies.
Universal policies pay a death benefit to anyone who purchases them, but does not require any additional investment. Therefore, it is most often purchased by those whose incomes are fixed. This includes seniors, whose death benefits are often withdrawn before they reach retirement age. Universal policies also allow for flexible premium payment options, which means that you can budget your payments based on your income. You may choose a fixed whole life insurance policy, a variable whole life insurance policy, or even a term policy. No matter which one you choose, you should research all options in order to determine the best option for your particular situation.
Another type of whole life insurance policy is called the funeral advantage. Just as with variable and universal policies, the funeral benefit will also be paid to whomever receives the final expense insurance proceeds. However, unlike whole life insurance policies, funeral advantage policies do not restrict the beneficiary’s income. Also, the final expense policies are more expensive than the other options, but this price is offset by the fact that the proceeds from the policy are paid out upon the death of the covered individual. Also, these final expense policies generally have less costly premiums than many other options available to consumers.