How can you protect your loved ones in event of your demise? In the complete sense of the word, you can't but, you can somewhat ease the pain of your passing by preparing for the tragic event. Let's face it, barring the soon return of Jesus, we will all die some day.
A kind of life insurance chosen by some people is called whole life.
What is whole life insurance? Whole life insurance is insurance that is designed to stay in effect for the entire life of the insured person and pay the benefit (or the amount of the insurance policy, sometimes called the “face amount”) when the person dies.
Whole life insurance differs from term insurance, which remains in force only for a specific number of years and then stops, even if the insured person is still living.
Senior whole life insurance differs from term in other ways too. It is more expensive, at least initially. Why? Maybe the most obvious reason is because it lasts for an entire life, as opposed to a shorter amount of time or number of years.
But there is another reason, sometimes misunderstood. Senior whole life insurance builds cash value over time - read years. For example, if a person buys whole life insurance at an early age and keeps it for a long enough period of time, the cash value in the policy can equal the amount of insurance bought.
A note of caution may well be in order here. Do not jump to the conclusion that the cash value in a whole life policy is like an investment. It is not like an investment and was never intended to be like an investment.
Look at it this way. The insurance company is at the greatest risk when a person first takes out a policy. Why?
The insurance company has expenses that are immediately due and payable. They must pay the agent who sold you the policy. Then they must pay the company to administer the physical exam to the insured person, when required.
Next they must pay their in-house underwriters who make the determination as to the level of risk the insured person represents. They need information such as, what is this person’s gender, age, occupation, and lifestyle? Is the person a smoker, etc.
They also need to review the applicant’s medical history.
A sidebar here: When completing an application online or with an agent, always, always be upfront and forthright will all the information you can remember, whether you consider it helpful to your application or not.
Why? Because sooner or later the insurance company will discover the information and if you did not first disclose it to them, they can very easily cause considerable grief when the time comes to pay the benefit to your beneficiaries. So please be as accurate you can.
Earlier I said senior whole life, or cash value insurance is more expensive than term – initially. Please let me try to clarify.
I buy plan A (senior whole life insurance) that costs me $1,000 a year for forty years and after forty years I receive $40,000 back
I buy plan B that costs me $300 a year for forty years and after forty years I would receive nothing back.
[Note: the dollar amounts above are for illustrative purposes only and do not represent any specific product or company]
Which is better, plan A or plan B?
The answer, of course, depends on a person’s individual needs. For some people plan A, senior whole life, would be better. Others would choose plan B. Ask you friends and family to discuss it with you. Only you know what is best for your unique needs.