Limited Pay Whole Life

Who wants to make car payments for the rest of their lives? If you answered yes, then you are probably a good candidate for ordinary whole life insurance. If you answered no, then you are probably a good candidate for limited pay whole life. I know what you’re thinking. What in the world does car payments have to do with life insurance? It's all about consumer behavior. Some consumers don’t mind making monthly payments in perpetuity. Others want to get payments over and done with so they can focus their attention elsewhere. Getting something paid off quickly usually involves making larger monthly payments. Limited pay whole life does just that.

With limited pay whole life you can have a paid in full policy (coverage continues forever without any more payments). There are two varieties of this plan. The first variety schedules payments to go for 10, 15, or 20 years. The second variety stops payments at a certain age (65 or 85). Obviously, the shorter the duration of payments, the more expensive the payments become.

The trick is to buy this plan while you are still employed. Employment should give you enough disposable income to afford the larger monthly payments. Make sure you select a payment duration that will end before you retire. Limited pay whole life is usually unaffordable for retirees living on a fixed income.

Limited pay whole life is also great for insuring minor children. Let's say you have a 5 year old child. If you do a plan that ends payments in 20 years, your child will turn 25 years old with a paid in full policy. Even if your child isn’t financially responsible, he or she will always be financially protected from burial or cremation cost. Hopefully this will start a tradition where your child buys the same type of plan for his or her children.

Limited pay whole life is probably easier to keep because there is a planned end date for payments. It's psychological. If you know there is an end in sight for the payments then you might try harder to keep those payments going. With ordinary whole life the payments drag on forever.

Like I mentioned earlier, limited pay whole life isn’t for everyone. For the same amount of monthly premium, a person can get more coverage on a life pay policy (the payments continue for life). Also, having a smaller monthly payment on a life pay policy could expand the budget for other monthly expenses.

I can’t say whether one policy is better than another. It really depends on personal preference and timing. If the timing is bad, then personal preference might not be relevant. You probably won’t hear very many agents talking about limited pay whole life. One reason is that commissions are lower. Another reason is that it's a tougher concept to sell people on. Many people aren’t eager to pay more for the same amount of coverage, even if it means fewer payments. Most people I run into are interested in the present day - how much coverage can I have now and how much do I have to pay?

Chris Topping is a life insurance agent serving Houston and surrounding cities for over 8 years.