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Dos and Don'ts When Considering a Whole Life Insurance Policy

This article was originally published on www.expertbeacon.com.  To view this article online click HERE.

 

Traditional whole life is permanent life insurance that provides guaranteed minimum cash surrender value.  This type of policy provides for a fixed level premium that is usually higher than for other types of insurance.  The level premium may be required for life or for a specified limited duration such as 5 or 10 years.  The premium for this policy funds not just the face amount of the policy and the guaranteed cash value but also an expected stream of annual credits to the policy.

Whole Life Insurance provides peace of mind by delivering permanent coverage at a guaranteed rate. However, there are many variables to examine before purchasing a whole life insurance policy.

Do #1

Know your options.

Buying Whole life insurance is like walking into a hardware store looking to purchase a screw.  The policy can come with many options that can be added on at additional cost.  It is important to determine what riders or benefits are available as add-ons to the policy. Many whole life policies allow you to add a disability waiver, accidental benefit or a variety of other riders and/or benefits which can enhance the policy's overall value. But be careful of the cost and the definitions of these riders.

Do # 2

Seek professional advice

Work with an independent broker who can provide you with unbiased independent advice and select the best whole life plan for your situation.

Do # 3

Time matters.

Many whole life policies allow you the option of paying up the policy in 10, 15 or 20 years. You generally pay a higher premium for this option, since your premium period is condensed to a shorter time frame.

Do # 4

Be clear about why you want what you need

If you are not sure how much coverage is needed, you should take into consideration factors like the needs and quality of life of your family. Every situation is unique and is going to have different needs, so make sure you’re the one determining what you need. You must make sure that the amount of coverage is enough to care for your loved ones should this occur.

Do # 5

Review, review, review

Life insurance should not be a set it and forget it product.  It is a good idea to review your life insurance coverage on a regular basis, especially given the fact that things can change in your life (marriage, divorce, birth of a child etc.), thereby changing your status and your needs.

Don't #1

Walking away is hard to do.

Once you have signed up for a whole life policy, don't cancel without exploring your options.  Whole life policies are generally much more expensive in nature and you want to make sure that you want coverage for life and that you're able to afford the premium. If you cancel the policy in the early years, you'll be losing the bulk of your contribution.  There are many options available if your cash flow situation changes.

Don't #2

There is no need to get scared

No one likes the topic of life insurance but everyone loves what whole life insurance can do for your family, your wealth and your legacy.  Although the topic of life insurance can be a daunting subject and confusion is common when exploring the options.  Take your time to ask as many questions as possible and don't get scared by the word "Insurance"

Don't #3

Show me the money

Don't be misled by overzealous illustrations. A policy illustration show how a policy is projected to perform based on the premium pattern shown and associated pricing factors that remain constant throughout the illustration.  It is important to understand that nothing in life is guaranteed but a general understanding of the past and the future projections will help avoid false expectations.

Don't #4

Never from the back of a truck

Do not get a life insurance policy from a company with a bad reputation. Insurance companies are quite different from one another. You should definitely perform research to find companies that are well-established, financially solid, and responsible.

Don't #5

Be careful what you believe

There is a saying I have heard many times, "Buy term and invest the rest".  If I were to rewrite that saying today it would be "buy term and lose the rest".  Some people have had bad experiences in the past and every situation is very different but the ability to make a personal decision will all the facts and information at your disposal will be your best course of action.

Permanent cash value whole life insurance can be a complicated product, but as long as it is structured properly and the right fit exists within your personal situation, it can prove to be a great addition to an individual wealth and estate plan.