What is whole life insurance?
Life insurance may help give you confidence that your family will be cared for financially if something happens to you. When you pass away, your loved ones could use the payout — sometimes called a death benefit — to cover funeral expenses, handle everyday bills or even help maintain the life you’ve worked hard to build.
One available option is whole life insurance — life insurance that’s designed to last your entire lifetime. Let’s look at what whole life insurance is, how it works and how it differs from other types of coverage.
How does whole life insurance work?
A whole life insurance policy provides lifelong coverage as long as you continue making your payments, or premiums. Each payment helps fund two things:
- Your coverage: The guaranteed payout your beneficiaries receive after you pass away
- Cash value: A savings component of your policy that grows over time and can be borrowed against or used later in life
Benefits of whole life insurance
A whole life policy offers a number of advantages that could make it appealing, including:
- Consistent premiums: Your rate is locked in when you buy your policy and won’t increase as you age or if your health changes.
- Guaranteed coverage: The death benefit stays the same for life, offering reassurance to your loved ones when you pass away.
- Cash value growth: Your policy builds cash value over time, which you may be able to borrow against, if needed.
- Tax advantages: Life insurance benefits are generally not considered taxable income, which means your family could receive the full amount tax-free.
Term life vs. whole life
When researching different types of life insurance, you may also be considering term life insurance. While term life insurance and whole life insurance are both designed to help protect your loved ones when you die, they work in different ways. Term life insurance provides coverage for a set period of time — such as 10, 20 or 30 years — and is often chosen for its lower initial cost. Whole life insurance is designed to last your entire lifetime and includes a cash value component that grows over time. Term rates may change based on your age. Whole life rates do not.
Term life insurance might be a good fit for covering temporary needs, while whole life insurance offers lifelong coverage and long-term financial features. The cash value of a whole life insurance policy makes it unique, and it can provide value while you’re still alive.
Combining whole life with other policies
Some people may choose to combine whole life with another type of policy, such as term life or accidental death and dismemberment (AD&D) insurance, for additional coverage. For example, you might add a term policy for extra reassurance while your family is growing or while you’re paying off a mortgage. When that term policy ends, your whole life policy continues providing lifelong coverage.
This approach means you could adjust coverage as your life and financial needs evolve.
Need more information about whole life insurance? TruStage™ can help. Learn more and get a quote today.
