Whole Life Basics

• A whole life insurance policy is a life insurance policy with a built-in investment component. The customer pays a monthly premium towards the policy, a portion of which is invested into different stocks, bonds or mutual funds. Typically, the insurance company designates which investment options to use. If the customer dies, his whole life policy will pay a base fee and any profits made by the investment portfolio to the customer's beneficiaries.
  
  

Benefits

• A whole life insurance policy has an open-ended term, meaning as long as the customer continues to pay the monthly premium, the policy will continue to grow. If the investment portfolio portion of the life insurance policy does well over the years, customers could have a larger payout than another form of life insurance would offer. Whole life insurance policies also allow the customer to borrow against his benefits. A customer can take out a loan to pay for an unexpected expense and then pay the loan back in installments. Having a life insurance policy also protects the customer's spouse and family in the event of the customer's death. Insurance pay-outs can help families cover the cost of funerals, debt and living expenses.
  
  

Disadvantages

• Whole life policies often come with a higher monthly premium than term life policies, due to the investment component of the policy. Some insurance agents may charge large commission fees when customers sign up for a whole life policy. Since the policy has an investment component, the worth of the policy can plummet if the investments chosen do not do well. This can cause the policy to have a much lower value than the customer expected. If a customer does not out live out a down turn in the stock market, his beneficiaries may get a much lower pay-out.
  
  

Tips

• Any consumer considering a whole life insurance policy should meet with an insurance agent. The insurance agent can review the consumer's financial portfolio and provide specific advice on the size of policy the consumer needs. This will keep the consumer from paying more than needed for life insurance. Consumers should also comparison shop when looking for a policy, as premiums and commission fees can vary greatly among insurance companies.