Like it or not, we live in a system where paying for insurance has become a necessity. However, with so many options out there, it becomes tough to choose the right policy.
Even within the scope of life insurance, there seem to be several policies to opt for. Each of them focuses on specific needs and offers unique benefits that can all be quite confusing.
In this article, let us take a look at two specific types of insurance policies. The 10-pay and 20-pay whole life insurance and understand their benefits.
What is Whole Life Insurance?
Before we look at the benefits of the 10 and 20-pay policies, it’s good to know what whole life insurance even means. With traditional term insurance policies, it only lasts for a predetermined number of years, and you don’t get any cash value. In a sense, term life policies focus only on the insurance aspect for a certain number of years.
Whole-life policies, on the other hand, are a more permanent option that will last you your entire life. It also allows you to accrue a cash value in addition to the death benefit.
As Investopedia states, the premiums can be locked in for life, and as long as you keep paying premiums, your policy doesn’t expire. Whole-life insurance policies combine insurance and investment, which is why the premiums can cost up to fifteen times that of term policies.
It’s natural to instinctively choose the much more affordable term policies, but you want to remember that you aren’t getting any cash value with them. Everything goes toward the insurance amount, and that’s it.
With whole-life policies, you are actually going to be making money and enjoying a lot more flexibility because of the cash value factor. Also, the cash value is separate from your insurance, so it’s a win-win situation.
Understanding 10-pay and 20-pay Whole Life Insurance Policies
Whole life insurance policies are great, but a lot of people are turned off by the idea of paying a premium until they die. It’s a commitment that makes an otherwise attractive policy a little awkward.
What happens if you lose your job 10 years down the line? What happens if there’s a recession and you can’t afford to pay regular premiums? In such situations, your whole-life policy doesn’t make sense because, once again, the benefits stop the moment you aren’t paying your premiums.
This is where 10 and 20-pay whole life insurance policies come in. It gives you the option of taking a whole life insurance policy but allows you to pay premiums only for a limited time. I.e; for 10 or 20 year periods. This type of arrangement offers a number of benefits. Let’s take a look.
Benefits of 10-Pay and 20-Pay Whole Life Insurance Policies
Naturally, the most obvious benefit is that you no longer need to pay premiums for the rest of your life.
A 10-pay whole life policy requires that you make all the premiums in a ten-year period, and then, the policy is considered paid for. It’s the same thing for the 20-pay policies.
This type of limited payment period is perfect for people who are financially secure at the moment but unsure about their future.
Another benefit of these shorter whole-life policies is that they lead to a quicker accumulation of cash value. You don’t have to wait all the way till your old age to reach the full cash value. This means that you are still in your prime and can withdraw from it or even use it as a source of income.
That’s right, you can give yourself a steady income which is a benefit that not many people seem to be aware of. Sure, people know that insurance policies payout, but it’s always in the context where you are too old to do anything with the money besides will it to your nominee.
As a final bonus benefit, 1891 Financial Life states that you can use your dividends to pay your premiums as long as you have a participating policy. This can really make whole-life policies worth investing in.
In conclusion, the 10 and 20-pay whole-life policies offer the same benefits as a regular whole-life policy without the long lock-in. If you are thinking about getting whole life insurance, it makes sense to consider either of these two options.
Yes, with a 10-pay policy, your premiums are going to be substantial, but once it’s done, you can breathe a sigh of relief. 20-pay policies do lower the premiums, but of course, you have a substantial number of premium-paying years ahead of you. Analyzing your present and future financial situation will help you make the right choice.
