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Guaranteed Whole Life Insurance: An Option You Can Live With

While many life insurance shoppers purchase low cost Term Life, they often wish they had selected a more forward looking option. The reason they don’t is often because they don’t understand the language.

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Recently a policy owner disclosed to a sales agent that he had plenty of life insurance, having recently increased his coverage to one million dollars on himself and $250,000 on his wife. For both of them, including riders on the children, he is only paying $1400 a year. Not bad for a million dollars worth of protection if something should happen to him.

He simply assumed he had purchased whole life; the agent had never informed him of the difference between term and whole life insurance. In fact the person indicated that he really didn't know what was meant by “Term Life.” Since he owns five businesses—all of them remarkably successful—the premium on the Term was basically pocket change. After the sales agent explained the difference between whole life and term, he wasn't particularly happy with his coverage.

When looking for life insurance, it is very important to make sure you understand the terminology. “Term to 95” sounds like you have coverage to age 95, and most people believe they will not live that long. Few agents take time to explain that “term to 95,” or whatever age is indicated in the contract, simply means that you can renew the policy until the age of 95 at which point the policy simply terminates. Furthermore, after the initial term—ranging from 5 to 20 years—the price takes a steep jump and continues to climb on an annual basis. No one every keeps term to the maximum allowable age for renewal.

If you really want coverage that will last a life time, you want “guaranteed whole life.” Here, too, it is important to understand what is meant by “guaranteed.” One could define whole life insurance as life insurance that will last until you die, but a whole life policy preceded by the word “guaranteed” will not have a price increase in the future and will never decrease in coverage. There are other forms of whole life such as modified whole life and graded benefit whole life which work a little differently.

A guaranteed whole life policy builds cash value that you can borrow against or receive as a surrender value if you decide in later years that you no longer need the coverage. The cash value does take several years to build; in fact, it takes to age 100 for the cash value and the face value to be equal unless you are able to find a 10 or 20 pay policy which allows you a “paid up” policy at an earlier age. Don’t be misled by the “paid-up” label however; a paid up policy simply means that by a certain age—say 20 years from the time you purchase the policy—you will have enough cash in the policy so that the anticipated future interest payments will exceed the anticipated rise in the cost of insurance, making additional premium payments unnecessary. A paid up policy will not actually have a surrender value equal to the face value for 15 to 20 years after your premium payments have stopped.

Advantages of Guaranteed Whole Life

  • Level face value and level premium for life

  • Availability of riders to cover additional needs

  • Possibility of purchasing a “paid up policy”

  • Potential for exchanging the policy at some point in the future for either an annuity or a single premium whole life

  • Guaranteed interest rate; policy can never lose value

  • Potential for a loan in the event of an emergency

  • Tax free benefit to beneficiary


  • Higher premiums than Term Life

  • Unpaid loans will reduce the amount of the death benefit

  • Gain over premiums paid is taxable if surrendered prior to death.

  • Surrender penalty for cashing in policy in first 15 years

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