Whole Life Insurance
Whole Life Insurance Comparison for Young Parents
Young parents making whole life insurance comparisons should focus on more than just rates and quotes. Cost is the easiest comparison to make, but policy features and riders vary widely, so finding apples-to-apples comparisons are very hard.
What may be more important is contrasting the advantages and disadvantages of the features and riders and contrasting them with your family’s needs. Young parents with children or a growing family should compare four key components:
Whole Life Insurance Feature Comparisons
It is also important to compare whole life insurance features which many companies will build into the base policy: cash value accumulation, policy loans, paid-up time frames, and guaranteed purchase options are some of the more common features.
The primary advantage to young parents for whole life is the guaranteed cash value accumulation which earns tax deferred interest as the cash grows inside your policy. Policies may have varying cash accumulation schedules, and differing levels of tax deferred interest that you will want to compare. Guarantees provide certainty, something that is often missing from the lives of young parents.
This cash value can help you meet emergency needs by allowing you to access the funds through a policy loan. The loan is not dependent upon any credit checks, and you repay the loan via a future increase in premium payments. Policies will have varying interest and repayment rules. Be sure to compare policy loan requirements.
Your contract can be “paid up” at age 65 or 95, depending upon your preference. No additional premiums will be due once you reach the paid up age. Guaranteed purchase option allows you to purchase additional coverage with no evidence of insurability. There may be an age limit on this feature, so look at this item closely. Young parents may find that the limit allows plenty of time.
Young Parents: Guarantees, Flexibility, or Affordability?
Young parents should also compare whole life insurance to other types of permanent cash value policies such as universal, and to temporary policies such as term.
Permanent coverage is designed for events certain to happen: when the children complete college, when you stop working, and when you pass on. Cash value policies are designed to be in place when these events occur.
Whole provides guarantees. A guaranteed death benefit will not change as long as premiums are paid when due. Guaranteed premiums mean the same premiums across time with no changes. Your guaranteed cash values earn tax deferred interest at specified rates.
Universal is an alternative form of permanent coverage that offers flexibility: the ability to change payment amounts, cash accumulation, and death benefits as your needs evolve.
Term addresses temporary needs. It makes the most sense when the need for coverage will disappear at some point, such as once college expenses have been put to rest, or you have enough money set aside to retire comfortably. This type of contract is most affordable: the premium costs far less per unit of death benefit amount.
Compare Whole Life Insurance Riders
Compare whole life insurance riders as your second to last step. Some common rider options include spouse and children term supplements, and the ability to waive premiums during disability.
Many whole life policies provide an option to attach spouse and dependent term coverage into a single policy. Contrast the costs of including all family members on the rider to purchasing individual plans for each person. Young parents often find that a single policy can be more convenient and affordable.
A waiver of premium rider waives all premiums in the event that you become totally disabled. Think about what might happen to your security if you got sick, and lost an income. You may not be able to continue making premium payments.
If you drop your contract, you may not be able to get another. Your medical condition that caused your disability may prevent you from passing underwriting criteria. Or your cost may be higher because you are older, or your policy was rated up to cover a shorter expected life-span.
A waiver of premium rider makes sure that your contract remains in force even if you get sick or hurt. Your bank or investment firm does not do this for you. Young parents may be planning on having more children, which often means multiple periods of disability for mom.