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Whole Life Insurance


Whole life is a type of permanent life insurance (as opposed to term life insurance). There are two basic types of whole life insurance – guaranteed and non-guaranteed.

Guaranteed whole life insurance has two primary features; level premiums for your entire life and a cash surrender value available if you cancel the policy. Quick pay policies are also available, where your premiums are compressed down to 10, 15 or 20 years rather than over your entire lifetime.

Non-guaranteed whole life insurance typically centers around a feature called dividends. Life insurance policy dividends are a refund of your own premiums and as such are not normally subject to taxation. These dividends are then used to do things like pay down your premiums or purchase additional insurance. However these dividends are sensitive to changes in investment earnings and are not guaranteed. As a result features that depend on dividends (premiums may increase, coverage may decrease, your policy may require premiums past when you though tit would be paid up) are also not guaranteed and may not perform as you expected when you purchased your policy.

While much of the life insurance industry’s focus with whole life centers around things like dividends and cash surrender values, the primary purpose you should be considering this coverage for is if you need life insurance for your entire lifetime. If you are seeking estate planning or payment of taxes upon your death, to leave an inheritance, to provide a lifetime policy on your child or grandchild, or to pay your funeral costs then whole life is a suitable product because it provides coverage for your entire life.

Life Insurance advises consumers interested in purchasing whole life insurance to only consider fully guaranteed life insurance policies, and particularly if your intention is to keep the policy for your entire lifetime. Given the long term nature of these policies, features that are not guaranteed over the long term seem to have a bad habit of being changed and not to the benefit of the consumer. A classic example of this in practices is the ‘vanishing premium’ lawsuits in the 1990’s. Canadian consumers successfully sued life insurance companies over the failure of whole life policies to become paid up (no more premiums due) as the result of non-guaranteed options in the policy.

If you are intending to keep your policy for your entire lifetime then you should also consider the two other types of permanent life insurance – universal life and term to 100. If you are researching these policies however note that universal life insurance has two variations; one that has guaranteed level costs for life and one that may have projected level premiums but that are not guaranteed. And be cautious when looking at term to 100 policies as some companies have taken to naming their whole life policies as Term to 100.

In the end, if you are shopping for whole life insurance, focus on the lifetime coverage first and foremost. How much life insurance coverage do you require for your entire life? After that, focus on the lowest premiums for the various life insurance companies. Other attributes such as cash values should be a distant third consideration from there. Cash values will also have a dramatic effect on the premiums of the policy.

It is highly recommended that you consult with a life insurance professional if you are considering purchasing whole life insurance (or any type of life insurance for that matter). Whole life insurance is a long term financial decision so it is imperative that you make sure that you purchase the right policy from the beginning. We have seen many people cancel whole life insurance policies only after having them for a few years which usually results in a large loss of money.


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