What is whole life insurance?
Whole life insurance can last the rest of your life with a guaranteed payout for your loved ones.
Whole life insurance may be a great fit for you if:
- You want coverage for the rest of your life
- You want a policy to build cash value over time
- You want to invest for a long-term benefit
What is whole life insurance cash value?
Cash value is what some refer to as a savings-like component of a whole life insurance policy. It grows slowly, on a tax-deferred basis, and accumulates as you pay the policy premium.
With your authorization, the cash value can also be used to pay premiums, keeping your policy current as your income changes with age. When available, you can also borrow against this cash value for unexpected emergencies, or even to pay medical bills or go on vacation by taking a tax free policy loan against the accumulated policy cash value. Keep in mind that annual loan interest will be applied to any outstanding loan balance, so it’s a good idea to pay it back if you can. The final death benefit will be reduced by any outstanding loans you have taken on the policy and any premium due.
For whole life insurance policies with a higher death benefit, it’s a good idea to consult with a certified financial advisor or wealth expert to see if whole life insurance is aligned with your financial goals.
What is permanent and whole life insurance?
Permanent life insurance covers you for your whole life as long as you continue to pay your premiums. Whole life insurance is the main type of permanent life insurance you might encounter. This type of coverage often accumulates cash value that may increase the death benefit, or be accessed early by requesting a policy loan or withdrawal.
Whole life insurance has two parts. It has a life insurance component that pays the policy owner’s designated beneficiary a death benefit. It also has a cash value component that can gain value over time. Whole life insurance is more versatile in that the policy owner can take out tax free loans against the cash value of the policy when values become sufficient to do so. If they decide they no longer need the insurance, they can surrender the policy back to the insurance company and get any available cash value in a lump sum.
Who Gets The Death Benefit From A Whole Life Insurance Policy?
Like any other type of life insurance, whole life insurance offers the policy owner the opportunity to name any person or organization as the beneficiary of their death benefit. This generally tax-free benefit, paid by the insurance company, can provide financial stability for a family with young children, replace income, or help create a legacy with a donation to a favorite charity or non-profit group.
Some companies offer policies that contain a graded death benefit, where the payout is a percentage of the full face amount or a percentage of premiums paid if the insured passes away in the first couple years of the policy. After coverage has been in effect for several years, the death benefit increases to the full amount.
Whole life insurance offers a level of certainty that appeals to some customers as well. As long as premiums are paid, whole life policy doesn’t expire or decrease in value, and the death benefit is guaranteed. This provides security and peace of mind that your loved ones will be protected, no matter the circumstances.
However, when considering whole life insurance as an option, it’s important to ensure the monthly premiums are well within your budget. It’s not uncommon for policy owners to lapse on their policies within a few years because they can’t keep up with the monthly premiums. These policy owners lose out on the benefits of their whole life policies by not allowing the cash value portion of their policy to grow and the death benefit to be paid to their beneficiaries.
