As the name suggests, whole life insurance is designed to last the whole of your life. It was the most popular type of life insurance before the advent of universal superannuation but whole life insurance now has a lot of competition with the advent of term life insurance policy options.

Types of Life Insurance

Term insurance is offered by insurance companies to allow for a certain sum of money to be paid should the insured person die while the policy was current. This simple form of a life insurance contract is very similar to other insurances you may already have such as the insurance on your house or car in case of an accident or other damage.

People used to look at term insurance as lost money, because if the insured person survived through the agreed term you were left with nothing. Therefore a scheme was devised to incorporate a savings plan into a term insurance policy, and this would give the insured person back their money if they didn’t die before the end of the term. As a result, whole of life or cash value insurance was born as a means of combining saving with.

Whole of life insurance premiums were higher than those of term insurance, but most customers accepted this because they knew that at some stage they would still benefit, either by providing for their beneficiaries, or by cashing in the policy and retrieving some of the cost of the premiums. Term insurance premiums were of course lost altogether should the insured person survive the term of the policy.

When superannuation came along the returns on retirement investments were much better, and whole life insurance sales dropped off dramatically. This is still the case today where it is more common now to either top up your superannuation death benefits with term insurance, or if you have no superannuation, you may purchase term insurance as death cover and invest any spare money in other ways.

Features and Benefits of Whole Life Insurance

Despite these trends there remains a demand for whole life insurance, especially for people who want to take out a policy which will last their entire lifetime so you don’t have to worry about your insurance expiring. A whole life policy will give you insurance on your life while you are young and in need of such cover because you have increased responsibilities such as buying a home and caring for the financial needs of a family. It will also give you a means of being able to ‘cash in’ or ‘borrow from’ your insurance policy should you require the money while not needing the same level of cover any longer.

A whole life insurance policy has the following benefits:

• A means of forced savings.
• Access to cash when needed.
• Peace of mind in having insurance cover for the whole of your life.
• Premium remains the same throughout the life of the policy.
• Money is never ‘lost’.

Term life insurance is no doubt cheaper, especially for the young, but the premiums do increase as you get older and should you outlive the term you have been insured for, all the money you will have paid will be forfeited.

Of course there are other ways you could invest your money which would provide a better return than whole life insurance, but these other investments won’t also be providing you with insurance cover at the same time. Financial advisors will often recommend term life insurance for insurance purposes and suggest that you find other ways to invest the remainder of your money, but this depends on how much money you have available for investment purposes and whether you have the capital available to take advantage of the most profitable investments.

The fact remains that for a person who is not comfortable with investments, whole life insurance does give you an opportunity where you can at least ensure you will get your premiums back, plus a little more in the long term, compared to term insurance where you will lose all your premiums if you should out live the term of your cover. Also remember that in times of high interest rates, good investment deals are everywhere but in slower economic periods your whole life policy investment might be quite competitive.

Although whole life insurance policies are generally regarded as being a whole of life entity they do in fact expire when you turn 100. This means that if you were to live to 100, the face value of the policy would become payable. This is another feature which you don’t have to worry about with straight term insurance.