What should I consider when buying cash value whole life insurance?

Whole life insurance is the oldest and the most common type of permanent life insurance. It enjoys great popularity among consumers who like its simplicity and guaranteed long-term returns.

Characteristics of Cash Value Whole Life Policies

• The insurance company calculates and offers the applicant a fixed premium, which is payable by the policy owner for life and is not subject to change.
• The face amount is to be paid to the designated beneficiary when the insured dies.
• Whole life policies include an "automatic premium loan" option which allows the insurer to pay an overdue premium installment through a loan from the cash value.
• The cash value component of a whole life policy is invested by the insurer in fixed-income investments.
• You can borrow money under a policy loan, but if you don't repay the loan, you run the risk of the policy lapsing.
• You can choose between a participating whole life policy and a non-participating whole life policy. A par policy charges a higher premium, part of which it might pay back in the form of dividend. In comparison, non-par policies charge lower premiums but they do not offer the dividend option.

Issues to Consider with Cash Value Whole Life Insurance

• Cash value insurance which includes whole life policies, is appropriate for people who will need the coverage for more than 30 years since it guarantees that you will be insured for the rest of your life.
• You are not allowed to adjust the amount of your premiums but you are also guaranteed that they will never increase, even under unfavorable external circumstances.
• Whole life policies are not as flexible as the other types of permanent life insurance: if the premiums are not paid on time, the policy lapses.
• The premium of a whole life policy is typically higher than for other variants of cash value insurance, therefore you should not opt for it, if you only need life insurance for a limited period of time.

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