What Is Whole Life Insurance ?
Whole life insurance is a kind of life insurance plan that provides permanent coverage to the policyholders and also ensures death benefit to the beneficiaries when the insured passes away. There are several benefits and some drawbacks of buying this type of life insurance policy which are discussed in this post.
Benefits Or Advantages Of Whole Life Insurance
Some of the key advantages of whole life insurance are as follows:
1. Lifetime Protection
Whole life insurance provides lifelong coverage because there is no termination date in this type of insurance policy. As long as premiums are paid, it provides lifetime protection for the insured person.
2. Guaranteed Death Benefit
Another advantage of whole life insurance is that it guarantees the death benefit. Nominees or beneficiaries receive death benefit when the policyholder passes away. So, it provides financial protection to the insured's family.
3. Fixed Or Constant Premiums
In this type of insurance premiums are fixed and will remain constant over the policy period. Premiums will not be changed with the change in the age or health of the insured.
4. Tax Advantage
Life insurance premiums can be deducted from the taxable income that helps to lower the tax amount. So, it provides tax benefit to the policyholder.
5. Loan Facility
After certain period (generally after two years) policyholders can obtain loan against the cash value. Interests on such loans are lower than other types of borrowings.
6. Customizable
Another advantage of whole life insurance is that it can be customized according to the need of the policyholders. Additional riders can be included to enhance insurance coverage and waivers.
Drawbacks Or Disadvantages Of Whole Life Insurance
Some of the major disadvantages of whole life insurance are as follows:
1. Higher Premiums
One of the major drawbacks of this type of insurance plan is that its premiums are higher than term insurance plans. Therefore, it is more costlier than other types of life insurance policies.
2. Complex And lengthy Process
It requires more paper works and formalities to buy while life insurance. It is difficult to understand the features and terms of the plan. Therefore, it is complex and time consuming than term life insurance.
3. Lack Of Flexibility
It is less flexible than other forms of life insurance plans. Amount of premiums and death benefits cannot be changed or adjusted.
Also Read
Advantages and disadvantages of life insurance
The main features of whole life insurance
The main features of term life insurance
Difference between term life and whole life insurance
Advantages and disadvantages of term life insurance
4. Lower Returns
It generates lower return compared to other forms of investment options. Therefore, buying whole life insurance policy may not be profitable than investing in stock, mutual funds etc.
Pros And Cons Of Whole Life Insurance In Short
Pros:
- It provides lifelong financial coverage
- It provides tax benefit
- It guarantees death benefit
- Policy can be surrendered after certain period
- It provides loan access
- It may pay dividends that helps to lower the premium
Cons:
- It is complex and time consuming
- Returns are lower than other investment options
- Premiums are higher than term insurance
- It is less flexible than other insurance policies
- There is a possibility of policy lapses