• Albert Lee, CONTRIBUTOR
  • Graduated UCI with Business Major. I love history and finances.
  • Opinions expressed by Sunpath Contributors are their own.
March 21, 2018 views: 30,239

Issued mainly by mutual companies, the important thing to note is that they are the most expensive type of insurance out of the three permanent types. Why is that? Simply put, the premium paid is actually an overpayment of the premium. They do that so that the Insurance Company can invest that money and return it to the customer as a form of a dividend each year. These dividends aren’t like normal dividends, and are more commonly known as a “refund” in the insurance world, or a “return of excess premium”.

So what are the Pros and Cons of Whole Life?

Pros:
As stated above, you have the highest premiums, but in turn you receive dividends.
These dividends can actually grow cash value, although very inefficient, it can be pulled out of the policy at any time in the form of a loan or withdrawal for your use to do anything.
The dividend that is paid out every year can actually grow to be large enough to pay off the premium. So in essence, while the policy is not officially paid up, there will be no out of pocket premiums as long as the dividend stays the same.
With the additional dividends, even if it’s not large enough to pay off the premiums, you can still use it to reduce the premium payments.
The extra cash value boosts the face amount of the policy. Inversely, if there is no extra cash in the policy, then there will be no face amount change.
Cons:
Even though you pay more in premiums for the policy for this added value of the dividend. The dividend is not guaranteed and can actually go down.
You are overpaying on this policy. The insurance company wants to make a return on your premium and return some of the excess profits back to you.
There are more efficient and diversified ways to get a better return and enhance the cash value of a life insurance policy.
Every year you receive a dividend, you will also be taxed on that dividend as it’s a realized gain.

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