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How Does Whole Life Insurance Work?

Life insurance can be a difficult topic. The subject is complicated, the options are many, and we often feel uncomfortable planning for the end of life. In addition, while most people recognize the value of life insurance, many are unsure about which type is best for them.


Term or whole life insurance?

As you begin to research your life insurance options, you’ll most likely come across the two main types of life insurance: term life insurance and whole life insurance. Here are their basic definitions:

  • Term life insurance: This is insurance you buy to cover a specific term, such as 10 or 20 years. These policies do not accumulate a cash value. Premiums tend to be lower because of the likelihood that you will outlive the policy. When the policy expires, you must buy another term and pay higher premiums if you still wish to have life insurance.
  • Whole life insurance: This is insurance you buy for the length of your life. The initial cost of premiums is higher than it is with term insurance because of the length of the policy. However, part of the premiums you pay build up into cash value, which you can use later in life. With whole life insurance, the policy you buy at 40 remains with you. Whole life insurance is often referred to as “permanent” insurance.


A closer look at whole life insurance

When you purchase a whole life insurance policy, you are agreeing to a contract in which the insurance company promises to pay your beneficiary a certain amount of money – called a death benefit – when you pass.

For example, let’s say you buy a whole life insurance policy at age 40. When you purchase the policy, the premiums will be locked in for the life of the policy as long as you pay them. They will be higher than the premiums of a term life insurance policy because your entire lifetime is built into the calculation.

Unlike term insurance, whole life policies don’t expire. The policy will stay in effect until you pass or until it is cancelled.

Over time, the premiums you pay into the policy start to generate cash value, which can be used under certain conditions. Cash value can be withdrawn in the form of a loan or it can be used to cover your insurance premiums. All loans must be repaid before you pass or they will be deducted from the policy’s death benefit.

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Final expense insurance – a type of whole life insurance

One of the most popular kinds of whole life insurance is called final expense insurance. Commonly known as burial insurance or funeral insurance, final expense plans are specifically designed to help cover end of life expenses like medical bills and burial costs.

Final expense policies typically have smaller face amounts – usually under $20,000 – because they are meant to cover specific expenses for surviving loved ones. Final expense plans can be more affordable and easier to qualify for than traditional life insurance because the face amount is so small.


What is Funeral Advantage™?

Funeral Advantage is a final expense insurance program specifically designed to help cover final expenses – such as medical bills and funeral costs. Like everything today, funeral costs are steadily rising. The average funeral can cost up to $9,000 depending on the services you use. Caskets alone can cost thousands of dollars depending on the material used.

Most families aren’t financially prepared to cover the high cost of their loved one’s final arrangements. That’s what Funeral Advantage is for. It provides a life insurance cash benefit when your family needs it most. Most of our policies range from $10,000 – $15,000, making them perfect for families on a fixed income who are concerned about paying for their loved one’s final arrangements. With Funeral Advantage, you don’t need to take a medical exam to qualify like most insurance policies. All you have to do is answer a few health questions on a one-page application.

Included with every Funeral Advantage policy is a free membership to the Funeral Consumer Guardian Society (FCGS). The FCGS will help your surviving loved ones with the many details that will immediately arise upon your passing. They’ll help price shop funeral costs to protect your family from overspending.


Next steps

Every individual or family has different concerns and questions about which kind of life insurance is most suited for them, how much coverage they need, and which policy will best provide for their needs and the needs of their loved ones.

At Lincoln Heritage Life Insurance Company®, we specialize in meeting with you one-on-one to learn what your needs are. We’ll take the time to understand your situation and help you protect your loved ones.

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