Business Development Officer, T.D. McNeil Insurance Services, Fresno, California
Whole Life Insurance is a contract in which the company guarantees to pay the death benefit in exchange for recurring premiums that never change. If you were to buy “pure insurance” for one year the premium would be very low in the early years but would rise rapidly to a ridiculous premium in later years. The design of a whole life plan is to have a level premium. In order to accomplish this the company creates “reserves” which offset the cost of the premiums in later years. These reserves are listed in the policy as surrender values. The company will, at any time will allow you to surrender the policy in exchange for the amount listed in the policy. Only a permanent life insurance policy develops these reserves.
Principal, LifeNet Insurance Solutions, Redmond, WA
Whole Life Insurance is designed to have a cash component that can be used in later years to pay premiums or purchase additional coverage without the need to re-qualify medically. Because of this, premiums must take into consideration the cost of insurance plus the side fund. Term insurance and some forms of universal life insurance have no such fund, and therefore have lower premiums.
Whole Life Insurance is the oldest kind of insurance around. The attraction to Whole Life Insurance are the guarantees associated with it. Not only do you get the death benefit guaranteed, but the cash value in future years is guaranteed as well with the opportunity to grow even more.
Because of these guarantees, there is a cost for this which is why it is more expensive however you do get what you pay for. Whole Life policies are pretty solid, pay dividends which you can take as cash or put back into the policy to provide a larger benefit later.
That is a great question! There are a couple of reasons why whole life insurance is expensive, especially compared to term life. The first is that it is almost certainly going to pay out. As long as you've kept up with the payments, and didn't die doing something illegal, the insurance company is sending someone a fat check. Term policies are cheap, because statistically, they pay out far, far fewer times. ( They also have much stricter health requirements to get, while whole life is more lenient). Whole life is also more expensive because of the costs of storing and investing your premium money. Unlike term, the money that you put into your whole life policy can be borrowed from the policy if you need it. Term policies only collect enough to cover the cost of your insurance, and have no cash value. I hope that helps, thanks for asking!
Agent Owner, Gilmore Insurance Services, Marysville, Washington State
Why is whole life so expensive? Because it is the ONLY product that really will cover you for your whole life. You are paying a premium that is LOCKED in time, they can't come back and raise the price. Finally, when you buy whole life, YOU control the policy. Nothing can be done without your permission.
I guess I would add this, the insurance industry is an industry of math. It is statistic driven and risk oriented. If you were an insurance carrier would you charge the least or the most for the product you bare the most risk from for payout? Once an insurance company has sold a whole life, they're no longer in charge, the insured is.
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Because of these guarantees, there is a cost for this which is why it is more expensive however you do get what you pay for. Whole Life policies are pretty solid, pay dividends which you can take as cash or put back into the policy to provide a larger benefit later.
I guess I would add this, the insurance industry is an industry of math. It is statistic driven and risk oriented. If you were an insurance carrier would you charge the least or the most for the product you bare the most risk from for payout? Once an insurance company has sold a whole life, they're no longer in charge, the insured is.