What is Straight Life Insurance?
Straight life insurance is a policy that offers lifelong coverage with consistent level premium payments. A straight life policy, also known as whole life insurance, has a cash value account that grows in size as you contribute premiums to the plan. Straight life policies are frequently costly and, as a result, are not recommended for short-term life insurance coverage.
How does straight life insurance work?
Straight life insurance is a type of permanent life insurance that has fixed premiums and a guaranteed death benefit. The policy, also known as whole or ordinary life insurance, has a term length that lasts your entire life. Term life insurance, on the other hand, has a set number of years before it expires.
What type of premium does a straight life policy have?
The premium structure of a whole life insurance policy is referred to as straight. This terminology indicates that the plan's premiums will be level, meaning they will not increase or decrease over the course of the policy.
For example, you could pay $30 per month for a $100,000 straight life insurance policy. In this case, the $30 premium would be fixed for the rest of your life.
Other whole life insurance policies, such as adjustable life insurance, may have premiums that increase or decrease over the course of the policy. These are some of the many policy features from which to choose when deciding on the best life insurance policy for you. For example, if you anticipate changing coverage needs in the future, an adjustable plan makes sense.
Cash value account
Straight life insurance is a type of permanent life insurance that includes a cash value account that grows over the life of the policy. A life insurance policy's cash value is distinct from the death benefit.
A portion of your monthly premium for a straight life policy will be deposited into the cash value account. The remainder of the premium goes toward the company's insurance costs.
The cash value is essentially an investment account within your standard life insurance policy. Over the course of the policy, this account will grow at a guaranteed rate. The rate of return will typically be high enough that when you reach the age of 100, the cash value account will equal the death benefit. You can use the cash value account for a variety of purposes at any time, including:
- Surrender value. If you decide you no longer want your policy, you can return it to the insurer and receive your money back.
- Loan collateral. You can ask your insurance company for a policy loan and use your cash value account as collateral. The most you could borrow is the total value of the cash value in your life insurance policy.
Simply put, the cash value of your life insurance policy represents the amount of money invested in it. This balance can be used in a variety of ways, but any money you withdraw from the policy will be deducted from your death benefit.
Pros and cons of straight life insurance
If you need long-term financial planning, a straight life policy can be a valuable life planning tool. Because the policy is intended to last your entire life, you will be able to maximize the cash value by keeping the policy for a longer period of time. Straight life does not work well for short-term needs because it can take decades to see reasonable investment returns from a cash value account.
Finally, the premiums for straight life insurance are significantly higher than those for term life insurance.
- A 20-year $100,000 term life insurance policy, for example, costs $199 per year on average. When compared to whole life insurance, which can have premiums of over $1,000 per year for a $100,000 policy, there are significant cost considerations between both policies. As a result, if you require life insurance for a period of less than 20 to 30 years, we recommend a term policy.
Aside from term life insurance, another low-cost life insurance option to consider is a guaranteed universal life policy. In addition to being simple to apply for and obtain, this policy is a type of permanent life insurance with a cash value account that is guaranteed not to fall below zero. As a result, if you want lifelong coverage without the need for a cash value account or are unsure whether you need permanent or term life insurance, it may be a good option.
Furthermore, when compared to other permanent policies, guaranteed universal life can be significantly less expensive.