Do I Have to Pay for Whole Life Insurance Forever or Can There Be a 10 Pay or 15 Pay Option?

You can pay whole life insurance policies forever or over 10 to 20 years — it’s your choice. But your monthly premiums will increase dramatically should you choose the latter option. The payment schedule you choose greatly depends on your affordability.

We’ll deepen your understanding of whole life insurance and talk more about the payment options throughout this article.

 

What Is Whole Life Insurance?

Whole life insurance gives you cover for your entire life. The premium (the money you pay) doesn’t change, so you don’t have to worry about increasing costs — a definite advantage over term insurance.

Moreover, you never had to pass a medical exam to re-qualify! No matter what health conditions you experience, you’ll still have insurance cover.

You also have the option to access multiple riders (extra add-ons to tailor the policy to address your custom needs) that aren’t available on term policies.

 

The Cash Value Component in Whole Life Insurance

The cash value section of whole life insurance is the most exciting — it accumulates money over time and is accessible while you’re alive. And yes, it grows tax-free.

Tapping into the cash value when times get rough is useful, but it reduces your death benefit. So, it’s worth considering the ramifications before withdrawing!

Actual growth varies depending on the policy, and it’ll take a few decades for it to stretch beyond the amount you’ve paid. But that’s only because a fraction of your monthly payment lands in the cash value.

 

The Costs and Payment Schedule for Whole Life Insurance

For many, whole life insurance policies are too expensive. However, you acquire attractive advantages such as the permanent coverage and cash value component.

A portion of your premium goes toward the insurance itself when you pay for it, and the rest joins the cash value to accrue more funds.

Generally, people seeking whole life insurance pay for it forever (i.e., until they die). But, you can choose to fund the entire cover in 10, 15, or 20 years. Although, doing so will extortionately raise your monthly premium for those years.

 

What Affects the Price of Whole Life Insurance?

The level of cover you select plays a major role in your premium rate. But other affecting factors are as follows:

  • Your age and gender
  • Any past and current health problems
  • Your height and weight
  • Your criminal history and driving records (DUIs and speeding especially)
  • Any history with substance abuse, marijuana use, or nicotine (including gum and patches) use
  • Your siblings’ and parents’ health history
  • Your hobbies and activities (the riskier they are, the more you’ll pay)
  • Your credit score

 

Other Provider Features That Impact The Price

The factors we’ve just discussed impact the cost of all types of life insurance, whether whole or otherwise. However, some features specific to whole life policies change the price too. These include:

  • Dividend crediting — If your whole life insurance pays a dividend, you can choose to use the payment to fund your premium. In doing so, you lower your out-of-pocket cost.
  • Payment period — If you choose to pay for the entire cover over a significantly shorter schedule (like 10 or 15 years), you substantially raise your premium.
  • Guaranteed return rate — Providers who offer a higher guaranteed return will come with more expensive annual premiums.

 

No Longer Need Your Whole Life Insurance? Surrender It

A term life insurance policy lapses as soon as you stop paying. But it’s not quite so easy to surrender your whole life insurance policy.

If you decide to stop paying, the accrued cash value on the policy funds your premiums until it runs out. At which point, the cover lapses, and they won’t pay your beneficiaries anything upon your death.

However, there are other ways to surrender your whole life insurance policy. Depending on the plan type, your options might be:

  • Reduced paid-up life insurance — Here, the insurer considers the amount you’ve already paid and figures out the death benefit value it could provide. Then, they offer you a new insurance policy with a lower death benefit. It’s a good idea to do this if you want to avoid paying income tax. Not to mention it leaves you with a bit of life insurance to give your beneficiaries if you pass away.
  • Cash surrender value — Perhaps the simplest choice when surrendering your policy, you can just request your cash value as a payout. There’s typically a surrender charge, which your insurer takes from the cash value. Upon transference, your insurance policy ends. Therefore, it’s worth having a new insurance cover in place before surrendering. Also, consider that you’ll pay income tax on investment earnings originating from the cash value.
  • Extended-term life insurance — With this option, your insurer considers what you’ve paid and turns it into a term policy for an equal death benefit. The term duration depends on how much you’ve paid, current insurance rates, and your age. It’s a good choice if you want to have some life insurance for a little while but don’t need the whole life policy.
  • 1035 exchange — A 1035 exchange lets you change your whole life cover for a different one. Alternatively, you can exchange it for an annuity. It’s useful to avoid paying tax on the surrender value or if you’ve found a whole life policy with significantly better features. Keep in mind that you can’t change the owner of the policy through a 1035 exchange.

 

Where to Get Whole Life Insurance

Plenty of high-quality Canadian insurance providers of whole life policies. Here are just a few:

 

Is Whole Life Insurance The Best Choice for You? Let Sim Gakhar Help You Find Out

Regardless of how you wish to pay for your whole life insurance — be it forever or for 10 years — Sim Gakhar can find your perfect policy. Don’t hesitate to get in touch.

 

FAQs & Helpful Resources Regarding Whole Life Insurance