Understanding Whole Life Insurance

15
August 2018
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Often referred to as permanent life insurance, whole life coverage offers peace of mind that your beneficiaries will be paid when you pass away, be it in two weeks or 100 years. This permanent policy locks in premiums, with no chance of increase due to a decline in health or increase in age. But that’s just the beginning.

A whole life policy has the added benefit of an accumulated cash value in the form of a savings account that you can borrow against during the life of the policy or cash-in if you choose to surrender your policy.

For example, if you are 85 years old and no longer worried about how your grown family would manage without you, you could surrender your policy, cash in the value of the savings element, and help contribute to your grandchild’s college education or pay off your mortgage.

A permanent life insurance policy can help you meet your long-term financial goals while guaranteeing that your loved ones are protected from the burden of money worries at the time of your death.

Top Advantages to Whole Life Insurance

Unless you stop making payments or attempt to commit fraud, your whole life policy can’t be canceled or revoked. The certainty of whole life makes it a very appealing option for many people.

Why choose whole life?

  • Lifelong protection: your policy never expires or goes down in value.
  • Guaranteed death benefits: the amount your loved ones receive is guaranteed.
  • Steady premiums: your policy rates won’t increase.
  • Cash value: a portion of your premium can build cash value that you can borrow against.

How Does The Cash Value Work?

The biggest difference between whole life insurance and term life insurance, aside from the cost, is the cash value savings component.

When you make a whole life premium payment, a portion of your premium is paid into an investment account that earns interest and grows over time.

You can borrow against the cash value of your life insurance policy. A life insurance loan is like a loan with no underwriting requirements and no credit checks. You can keep the loan outstanding for as long as you want. However, if you pass away, the value of the loan is deducted from the amount of death benefit your beneficiaries receive.

While there are advantages to drawing from your cash value - these loans typically come with low-interest rates and, as we mentioned before, don’t come with the same credit and underwriting requirements as a bank loan - it’s not free money.

If you decide not to make interest payments, the interest can be added to the outstanding loan. If the size of the loan exceeds the policy’s cash value, the policy may lapse. Or you run the risk of your beneficiaries not receiving full death benefits if you pass away while the loan is outstanding.

Is Whole Life Insurance Right For You?

While premiums can be higher on a permanent life insurance policy than other, temporary insurance coverage options it is because the death benefits last for the entire duration of your life, no matter how long that may be. Additionally, no other life insurance policy offers a cash value savings plan.

Whole life insurance might be a good fit if you have a lifelong dependent, such as a child with special needs. Whole life can be a good fit if you want to start saving for a future expense but want a simple method for investing. Whole life may also be right for you if you want to lock in your life insurance premium rates when you’re younger and healthier, so you won’t pay more for the same coverage later in life.

You can also borrow against the savings element in the future to help pay for large life expenses like:

  • Buying a house
  • Paying college tuition

This type of insurance is ideal if you want to add to your inheritance planning. You can utilize your cash value benefits to:

  • Pay estate taxes
  • Equalize inheritance to heirs

Premiums are going to be higher on a whole life insurance policy versus temporary life insurance because it does offer an accumulated cash value savings – with tax-deferred interest – along with lifelong death benefit coverage.

Without a crystal ball to look into the future, the best way to prepare for what is to come is to hope for the best and be ready for the worst. With a permanent life insurance policy in place, you know that your family will be better protected.

Whether you find yourself needing to borrow against the savings account at some point or if your loved ones receive death benefits at the time of your passing, whole life insurance has you covered, regardless of how far in the future you may need it.

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