There are many agents and consumers alike who want absolutely nothing to do with whole life insurance due to the higher premium costs. They fail to understand the role whole life insurance plays in balancing out a protection portfolio. They also do not appreciate why it is so much more expensive, so they cannot justify the higher premiums.

The obvious answer to why whole life is more expensive than term life insurance is that the coverage is permanent instead of temporary. Whole life insurance will remain in effect as long as premiums are paid and until the death benefit is requested. Another reason is that whole life builds cash, value which means the policy has a savings account feature built in. The whole life savings account has two primary purposes. The policy holder can borrow against the accumulated balance, and, if needed, the fund balance can be used to pay premiums.

When trying to determine if whole life is the right type of coverage for you, the first question you have to answer is what is whole life?

Whole life insurance, also known as “Ordinary Life Insurance,” is a permanent life insurance product providing coverage until the policy holder dies or reaches the maturity age as stated in the contract, which is typically 100 to 102 years old. If the contract reaches maturity, the cash value would equal a guaranteed death benefit.

Common aspects of whole life policies are that they have consistent guarantees that make them very rigid. The policy holder is locked into a set premium payment until the policy reaches the maturity date. Whole life insurance has a guaranteed or level death benefit and, as previously stated, the coverage builds cash value.

An aspect of a whole life policy that should be completely understood is if the policy holder’s financial situation changes and premiums can no longer be paid, the policy holder may be faced with either using the policy’s cash value to pay the insurance premiums or surrendering the policy. If the cash value is used to pay the premium, the available cash reserve will be reduced, thereby affecting the death benefit.

Whole life insurance becomes an excellent addition to an existing term policy because whole life will provide coverage upon completion of the term policy. Whole life provides a permanent life insurance solution. Whole life policies can provide an investment opportunity for individuals seeking life insurance protection and at an attractive interest rate. Whole life policies typically will pay a much higher interest rate than the policy holder would earn with a financial institution. The investment opportunity is made even more attractive since the cash value grows tax deferred. Many whole life policies provide more flexibility by allowing the policy holder to convert the policy to “paid up” term coverage providing for greater flexibility.

Although the premiums are higher with whole life, the flexibility that results from the accumulation of the cash value and tax-deferred benefits make it easy for policy holders to justify the greater premium expense.

Tim Jarvis is a licensed and experienced Texas life insurance agent who focuses on educating his fellow Texans on the best way to shop and quote Texas life insurance coverage