Whole life insurance is a permanent and cash value policy that allows for gaining a return with your investment. A permanent policy or whole allows the insured to provide benefits upon dying and a cash value policy simply allows to build profit with your investments. Depending on what type of whole life policy the person receives, that policy will decide whether the insured has investment options or simply that the rates and monetary outcomes will be fixed.
Whole life allows for coverage for the insured person their entire life while another type of policy called term insurance is quite the opposite and is a set amount of time such as 10, 20 or 30 years. Whole life is a pretty significant higher payment per year while term is more affordable because of the simplicity and non cash value.
The Simple Man’s Policy
Term life insurance is a great policy for the person that makes less than $250000 a year and is only interested in a simple payment plan to take care of their beneficiaries in a set amount of time. Additionally, the term life is also a good option for someone that wants to keep their investments separate than a life vs death scenario or might have savings already squared away in other investments.
Making Money and Saving for the Inevitable
Whole life can be quite diverse and also more structured. The benefits of whole life are quite straightforward when comparing it to term insurance but the capacity of these benefits can be more complex. While term is simply temporary insurance for a set amount of time and provides only a death benefit; Whole life provides a policy for the life of the insured and cash accrual for members of the family. The policy is designed to build tax deferred cash value with dividends or interest over a period of time while making payments.
Annual Price Comparison of Both Term and Whole
The annual cost of whole life insurance and term can obviously vary because of age, health, and size of investment. When comparing prices of term and whole insurance there is quite a difference because a portion of the whole life payment is going into investments. Here is a small ballpark case study that involves price comparisons of term and whole life:
Healthy 35 yr old Man Term Insurance Policy
- $430/ year for $500,000
Healthy 35 yr old Man Universal Whole Life Policy
- $4,400/yr for $500,000
It is worth noting that the term policy can be changed later into a whole plan but there will be a fee involved that most likely will not benefit the insured. When looking at the study above and the annual payment differences; A person would understand if the lesser payment is better in the long run for them based on current finances and occupation.
Participating and NonParticipating Policies
So let us look at the definition of participation; Participate is to take or have a part or share. So simply the insured has the ability to take part or not take part in the profits earned by the company which is part of your investment and is usually given in bonuses or dividends. These profits are earned from a group of policyholders that are all participating and the company uses this money to invest. Nonparticipating policies are paid a guaranteed sum from which both parties agreed upon at the maturity of the policy such as the death benefit and usually have a lower payment..
Both of these policies are used with term and whole plans but cash value policies such as whole life are more common because it is simply another option to gain a return. It is also good to understand that these 2 different participation types are among a number of other different whole policies. Participation loans are being used more often with term policies because of the obvious advantages of gaining a return of your investment.
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