Whole Life Insurance Explained…
Whole life insurance can be explained much like renting vs. buying a house. Term life insurance you rent the policy for a period of years, if you pass away within the period of years the company will pay a death benefit to the beneficiary. With whole life insurance, you are buying the policy. You own the policy for life given you pay the policy premiums. Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. It helps provide family financial security through a combination of lifetime coverage and cash value borrowing privileges. Whole life insurance has a built-in tax-deferred savings component that accumulates cash value through interest and dividends.
Whole life insurance policies do not expire or have to be renewed and the death benefit and premiums are fixed throughout the insured person’s life. The policy invests some of the premiums in a savings feature with a guaranteed interest rate, so the policyholder has cash value in the policy which can be redeemed. Returns on interest on insurance accounts are tax deferred until they are withdrawn, making whole life insurance as an investment a good choice for low-risk investors looking for predictable returns.
But Why Purchase Whole Life Insurance?
One reason why so many individuals choose this option, is the cash value that is gained. The cash value allows the policy to serve as a type of investment or savings vehicle. When your loved ones receive the whole life insurance death benefit, they are not going to be taxed for it.
Another reason is you get more than your pay for. You policy can earn annual dividends. Dividends are not guaranteed and are taxed once you take receipt of the money. Many whole life policies are eligible to receive dividends, or payments based on the insurer’s performance, such as investment earnings, favorable mortality rates, and operational savings. The companies we deal with have ALWAYS earned dividends. With dividends in mind, we recommend using the “Paid-UP Addition” option with the whole life insurance policy. This option allows the annual dividends to purchase you more death benefit each year. So I essence, you purchase a $100,000 Whole Life Policy yet each year the policy death benefit will grow larger than the original $100,000.
I can’t afford it…
Budgeting a whole life insurance policy can be difficult to become comfortable with. Remember, purchasing life insurance is an investment not a bill. Most people look at it as another bill. Whole life insurance can give you peace of mind knowing that no matter what your family will be taken care of in the event of your untimely passing. One hurdle to purchasing a whole life insurance policy is the high premium. When you are considering life insurance we take into consideration your stage of life. Depending on which stage of life you are in will determine what product and why type of life insurance we recommend. Oftentimes, we will recommend a term life insurance policy and a conversion option that will allow you to convert the policy to universal or whole life insurance down the road.
The Benefits of Whole Life Insurance:
The benefits of whole life insurance include guaranteed fixed premiums, a guaranteed death benefit and guaranteed cash value growth. Among the most important benefits of whole life insurance is that the investment portion of your policy belongs to you. One of the most significant benefits of whole life insurance is that it provides insurance coverage to the policy holder through his entire life.