Whole Life Insurance is an extremely powerful financial tool that allows the owner to have lifetime coverage. It takes up a death benefit combined with a savings component growing bigger over time. The most common question most people seem to have weighing their whole life against other types is, “Do I have to pay for Whole Life Insurance forever, or can I pay all premiums within, say 10 or 15 years?” In this blog, we’ll take a deeper dive into how those options work and what they can mean for your financial planning.
What is Whole Life Insurance?
Before delving into how it gets paid for, let’s start by understanding what Whole Life Insurance is. It is a type of permanent life insurance that covers you for your whole life, as long as the premiums continue to get paid. Unlike term life insurance, which would cover you for a stated period of time say 10 or 20 years-whole life does not expire, so long as the premiums are paid.
One of the prime advantages of Whole Life Insurance is the cash value component. Part of your premium goes into a savings account that accrues over time, and that one can borrow against or even cash out, considering the terms of one’s policy. For this reason, Whole Life Insurance Policies can be not only a safety net for one’s loved ones but also a growing financial asset unto themselves.
Do You Have to Pay Premiums Forever?
Now, with the traditional Whole Life Insurance Policy, you pay premiums throughout your lifetime. That’s where the term “whole life” comes from- you’re covered for your whole life, and in turn, you pay premiums as long as you live. But this isn’t the only way to structure a Whole Life Insurance Plan.
With so many in Canada seeking flexibility in Whole Life Insurance, the options of 10 Pay and 15 Pay are brought into play.
Understanding 10 Pay and 15 Pay Whole Life Insurance Options
So, what are 10 Pay and 15 Pay Whole Life Insurance options? These modified Whole Life Insurance Policies let you pay faster to free up more of your money for those other pursuits. Rather than paying premiums throughout your life, you can choose to pay in a much shorter, defined period of time, usually over 10 or 15 years.
- 10 Pay Whole Life Insurance: With a 10 Pay Whole Life Insurance Policy, you make premium payments for 10 years. After the 10th year, your policy is considered “paid-up,” meaning you no longer have to make any payments, but your coverage continues for the rest of your life.
- 15 Pay Whole Life Insurance: Similarly, with a 15 Pay Whole Life Insurance Policy, you pay premiums for 15 years, and once that period is over, your policy is fully paid up, offering lifelong coverage without additional payments.
These are particularly attractive options for people who either want to make sure that their life insurance is completely paid for before retirement or for people who prefer to front-load their expenses while they have higher earning potential.
Benefits of 10 Pay and 15 Pay Whole Life Insurance
- Financial Flexibility: By opting for a 10 Pay or 15 Pay Whole Life Insurance Plan, you can align your premium payments with your financial goals. Many people prefer to have their insurance fully paid before retirement so they can enjoy their retirement without worrying about ongoing payments.
- Lifelong Coverage: Despite paying for a limited time, your coverage lasts a lifetime. This means you have peace of mind knowing your loved ones will receive the death benefit regardless of when you pass away.
- Cash Value Accumulation: Just like with traditional Whole Life Insurance Policies, a portion of your premiums goes into a cash value account, which grows over time. This can be a valuable asset, particularly if you need to borrow against it in the future.
- No More Payments After the Payment Period: Once your 10 or 15-year payment period is over, you no longer have to make any premium payments, but your coverage continues. This is especially beneficial for those who expect their income to decrease later in life, such as during retirement.
How Do Premiums Compare?
Of all the factors to consider with the 10 Pay or 15 Pay Whole Life Insurance Policy, the premium cost is probably the single biggest factor. Because you are compressing the payment period, the premiums for these plans are higher than those for traditional Whole Life Insurance, where payments are spread out over a lifetime.
The catch, of course, is that most find it thoroughly worth it: paying more in premiums over a shorter period of time frees one from financial obligations later in life, which is a huge advantage, especially if one ever intends to retire or cut down on work hours.
Is 10 Pay or 15 Pay Right for You?
Some people choose between traditional Whole Life Insurance and a 10 Pay or 15 Pay option. Both depend upon one’s financial situation and long-term goals. A person who wants a more reasonably priced premium and doesn’t mind paying his or her entire life is best suited with a traditional Whole Life Insurance Policy. On the other hand, if you want that peace of mind whereby, after a certain period, your policy is fully paid up, the options of 10 Pay or 15 Pay can be ideal.
The Ending Note
Whole Life Insurance is a great financial protection and, at the same time, an efficient tool for savings growth. Whether one is taking up traditional Whole Life Insurance or prefers the 10 Pay or 15 Pay options, one should choose an appropriate plan suitable to his goals in life.
It would help if you always discussed Whole Life Insurance with an insurance professional who can provide you with appropriate quotes and go through the options for you in detail. Whether you are considering a Whole Life Insurance in Canada as a long-term investment or a means of taking care of your loved ones financially, you need to understand your options with respect to payment to make the appropriate choice.
FAQs
What if I am unable to make a payment on my 10 Pay or 15 Pay policy?
Most policies have a grace period, but communication with your insurer is paramount. Forfeiting premiums may lead to changes in your coverage, so the best course of action is to speak with your provider about your options.
Can I switch from a standard Whole Life Insurance Policy to a 10 Pay or 15 Pay policy?
This generally involves purchasing a new policy, but it is always advisable to consult with your broker of record regarding your options.
Does the cash value accumulate more in a 10 Pay and a 15 Pay policy compared with a traditional Whole Life Insurance Policy?
The growth of cash value would be dependent on the policy and how the premiums are invested. The higher the premium paid, the quicker the cash values grow, but that will be according to the terms of the individual policy.
Does a 10 Pay or 15 Pay Whole Life Insurance Policy require a medical exam?
The majority of life requires a medical exam, which includes the 10 Pay and 15 Pay options. No-exam policy options are available, but typically at a more expensive premium.
Can I borrow against the cash value of a 10 Pay or 15 Pay Whole Life Insurance Policy?
Yes, just like traditional Whole Life Insurance, you can borrow against the cash value built up in a 10 Pay or 15 Pay policy.
Know More: Understanding Participating and Non-Participating Whole Life Insurance in Canada