Whole life insurance: Choosing the right plan

A whole life insurance policy is sometimes referred to as permanent life insurance because it offers permanent death benefit coverage. Aside from a death benefit, your whole life insurance can also build cash value over time through tax-advantaged savings and investments.

Think of it as a savings and investment account you’re building for the people you’ll leave behind one day.

When a policyholder with whole life insurance dies, his or her beneficiaries will be paid a death benefit. With a whole life insurance policy, this sum of money can grow over time through investments. Whole life insurance policies also give policyholders the option to access the money while they’re still alive, though they may have to pay interest for doing so.

Whole life insurance premiums are generally high, but some plans offer level premiums that will never change. Your premium will be determined by factors including your age, health conditions, family health history, smoking status, criminal history, and dangerous hobbies. Other plans will allow you to reinvest your dividends and interest to cover your premium, or you can use your plan’s cash value to account for rising premiums.

Any interest you earn on the plan’s cash value is tax-deferred, and dividends can be reinvested back into the cash value. You can also make additional payments to build up the plan’s cash value for more potential returns.

It’s possible to eventually earn more in interest and dividends than the cost of your premium.

Learn the different types of whole life insurance policies

Compared to term life insurance policies, whole life insurance policies are pretty popular since they offer an opportunity to grow your money while setting funds aside for your loved ones and future expenses. When you get a little deeper into the weeds of whole life insurance, you’ll realize there are different types of plans that offer slightly different things.

Traditional whole

Traditional whole life insurance policies are designed to offer a level death benefit and premium throughout the policy. You’ll pay the same premium and your beneficiaries will receive the death premium stated on your policy. You can also borrow money from your policy’s cash value to cover any expenses later in life.

Universal

Universal life insurance policies give you the option to increase your death benefit if you pass a medical exam. When your plan accumulates enough value, you can change or pause your premium payments. You also have the option of borrowing money against your policy’s cash value to cover expenses later in life.

Variable

Variable life insurance policies offer a death benefit and a savings account that invests the premiums you pay. This may help your policy grow quickly, but it can also decrease your benefits if your investments don’t perform as expected.

Variable Universal

A variable universal life insurance policy combines the features of universal and variable policies into one plan. You can control the premiums you pay and make money on investments.