Whole Life Insurance

The main decision about life insurance is always cast as a choice between term and whole, i.e. whether to buy a policy that only covers you for a fixed period of time or for your whole life. Yet, as with most things in life, that's a simplification. If all you want is some money for those you leave behind, you buy term life insurance because that's the cheapest type of policy. Yet here comes the news you prefer not to hear. Almost ninety percent of term life policies never pay out. Yes, a remarkable number of people either cancel their policy or live longer than the term. So, from the life insurance company's point of view, it prefers term life insurance because it takes in the annual premiums and only rarely has to pay any of it back.

Now let's come to the whole life policy from your point of view. You prefer this type of policy for two reasons:

If you buy a term policy, it's a very simple transaction, rather like a bet or renting a house. If you live beyond the date, the policy terminates. There’s no residual benefit of any kind. Nor can you cash in the policy during the term. You never get any of your money back. But with a whole life insurance policy, there's a cash value generated by the insurer who invests your installment payments. If you search around, you should find policies that pay a dividend of at least 4%. Better still, the investment income added to the value of your policy is tax free. If you want to realise that value during your lifetime, you have three options. You can: