Whole Life And Term - A Good Combination?

by Donald Lusan
Combining whole life and term insurance! Have you ever given that some thought? The life insurance company can create a combination policy for you if that is your desire. This idea works out pretty well for some people.

Why would you combine whole life and term life insurance anyway? If you use your whole life policy as a base and add the term policy you would end up with more life insurance death benefit for your dollar than had you bought whole life alone.

On the other hand you may say that if you bought term alone you would get more death benefit. That is true but ask yourself this question, suppose you don't die within the term period would there be any money to get back. The answer is usually no, unless you buy a "return of premium term policy".

The way to set up these combination plans, whole life and term, requires some planning. If you qualify for a preferred risk policy with a top level company you may only need to buy about 25% or 30% whole life and the other 70% or 75% term insurance. This combination will afford you a fairly decent amount of total life insurance with some cash values to assist you in the hard times. The type of term policy you purchase would depend on your particular need, 5 or 10 year level term for short term needs and 15, 20, 25, or 30 year term policies for longer term needs.

The reason you would use a combination policy, whole life and term, is that the portion of your premium that pays for whole life accumulates cash values. If you are unable to pay your premiums at some point in the future you can draw upon the cash value and the dividends, if any. You can use those funds to keep the policy in force. Keep in mind, however, that it takes time to accumulate worthwhile cash values plus dividends.

It is important to also remember that, depending on the portion of premium assigned to each type of policy, your cash value may never equal your total outlay. You will have some cash for emergencies though, after a few years.

Actuaries have used similar ideas and created actual policies. If you examine the universal life policy you will find that it is a term policy combined with a saving plan. The variable universal life insurance policy is term insurance combined with an investment and the variable life policy is whole life insurance combined with an investment portfolio.

Ask yourself what type of insurance you need and why. Combining different types of life insurance policies may work for you.

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