When you go out to pick life insurance, one of the most important considerations can be the policy amount. The most popular varieties of permanent life insurance sold in the United States have lifetime coverage along with a cash value component: whole life insurance.
This tends to run significantly more than term life insurance, however, so knowing what influences the cost can only help you to make the best decision possible.
This blog breaks down the key considerations that factor into the whole life insurance cost and can help further explain how premiums are actually calculated.
What is Whole Life Insurance?
This is permanent life insurance that can be with you through your entire lifetime if you are capable of continuing to pay the premiums. Term life pays over a period of years while continuing in force until the person being insured dies. A whole life is better suited to long-term planning because it is more permanent than a term life.
The other important characteristic of whole life insurance is cash accumulation. A portion of your premium accumulates in cash value that grows over time and can be available for access through some means such as borrowing against the cash value or withdrawing cash values.
Factors that Influence the Cost of Whole Life Insurance
Age
The age is one of the factors that will determine the cost of whole life insurance. Normally, the younger and healthier you are when buying the policy, the lesser your premiums will be. This is because the insurer views the young as less risky to insure.
Gender
Due to their longer life expectancy, women have received less expensive life insurance than their male counterparts. This is a difference in the cost of your premiums as a whole since women usually pay less for the same coverage level.
Health and Medical History
The insurance companies typically use your health status to compute premiums. Pre-existing medical conditions, smoking, and a hazardous occupation will ensure you pay for high premiums, while a healthy individual with healthy lifestyle habits gets the best rates available.
Amount of Coverage
The more your death benefit is, the more you will pay for whole life insurance. In simple terms, this means if you are looking at a very big payout to your beneficiaries, you will be paying more for your premiums. That being said, there is the actual level of coverage versus what one can afford.
Policy Type and Add-ons
Such coverage can come in the forms of traditional whole life, universal life, or variable life insurance. These are different structures and premium costs. In addition, riders and add-ons may include accelerated death benefits or disability riders that will increase your premium cost.
Cash Value Growth
Because whole life insurance has cash value, the rate that it is accruing is affecting the premium payments. More frequently, the cash value has an established interest rate, and its accrual aids in paying back premiums when the policy reaches its maturity.
Insurance Company
Not all firms offer the same rate for whole life insurance. Companies are different with regard to their underwriting process, pricing model, and financial goals. It is best to shop around and compare quotes from a few different insurers so you can end up with the best value for your premium.
Premium Payment Period
Some whole life insurance policies offer several different payment options. You might pay premiums for a set period of time (such as 10 or 20 years) or pay premiums until you reach a certain age. The longer your payment period is, the higher your premiums are likely to be.
How Much Does Whole Life Insurance Cost?
The average price range for whole life insurance ranges between $150 to $1,000 per month, depending on a variety of criteria. Some of these are shown below:
For example, the following costs will apply:
- Healthy 30-year-old, non-smoker: about $200-$300 per month on a $500,000 policy
- 50 years old, has health problems: more than $700 per month for the same amount.
Whole life insurance premiums are generally more expensive than term life insurance, but the added benefits that come with lifetime coverage and cash value accumulation may be a good investment for people who want to have long-term financial security.
Is Whole Life Insurance Worth the Cost?
The decision of whether whole life insurance is worth the cost depends on your financial goals and personal situation. Here are some factors to consider:
Long-Term Coverage
Whole life insurance would suit you best, especially if you want to take a lifetime cover with a guaranteed death benefit. Furthermore, this might be useful as an estate-planning tool because it helps the heirs secure everything after the life insured passes on.
Accrual of Cash Value
A cash value can be accrued over time using whole life as a means to accumulate wealth if an individual purchases a life insurance policy; it grows tax-deferred, and the policyholder can withdraw funds for supplementary retirement income, emergencies, or funding other needs.
Affordability
For those with an extremely tight budget, the higher premiums of whole life insurance may be quite a challenge. Term life insurance or some other option would serve to bridge the financial protection gap.
Alternative Investment Options
Even though the cash value of whole life insurance is increasing with time, it mostly grows at a relatively slower rate compared to other investments such as stocks, bonds, or real estate. In case wealth building is the goal, then you should consider other forms of investment apart from or even instead of whole life insurance.
Conclusion
Whole life provides benefits such as lifetime coverage and a guaranteed death benefit, coupled with a cash value. You pay a premium that depends on your age, health, the amount of coverage you take out, and the policy you buy.
So, before getting into a whole life insurance policy, you must weigh up against your financial goals, the affordability of the premium, and if the features provided by the policy are aligned with your needs.
