Arizona Whole Life Insurance
Reader’s Question:
Hi, I am just confused, why I pay higher than what my sister pays for life insurance in Arizona. I am insured under whole life insurance and my sister avails a term life insurance. Are they different?
Arnold
Yuma, AZ
It’s really great that you asked, Arnold.
I know a lot of people who get easily confused about the differences between these types of life insurance policies. Well for one, term life insurance is just raw, basic insurance. It pays cash to the beneficiary on the death of the insured person. The policy has no cash value as time builds up. You cannot borrow against a term life policy and if you stop paying the premiums, you will have nothing to show for the premiums you’ve already paid. The big advantage of term life insurance is that it has the lowest cost way to get a large amount of coverage.
On the contrary, whole life insurance does build ongoing cash value. The longer you keep the whole life insurance policy, the more value it has. And this is actual cash value that can be made available to you in the form of loans with low interest rate. You can also choose to loan against it without any interest but would diminish your death benefits. Because of its cash value build up, whole life insurance is more costly than term life insurance. In many cases, the cash value of a whole life insurance policy can actually exceed the total of all the premiums you have paid for the coverage because the insurance company invests the money they gather as premiums. Depending on the details of your particular whole life insurance policy in Arizona, there may come a time when you will no longer need to continue paying premiums, but you will still retain the coverage of the whole life insurance policy. This is called ‘paid up whole life insurance’.
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