You’ve heard of life insurance, but how about “whole life” insurance policies?
While planning for the future is important to us all, sometimes, we need a little extra. In some cases, the typical life insurance policies are simply lacking.
If you’re looking for unique benefits, flexibilities, and capabilities with your policy, your whole life may be the way to go. Let’s cover some of the most important aspects of such a plan and why they may be right for you.
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What is a Whole Life Policy?
Also called ‘permanent life insurance,’ a whole life policy differs from term life insurance in one critical way. It covers for the whole life! That is, as long as you keep paying your premiums. And when you pass, your beneficiaries also enjoy the death benefit.
With whole life policies, holders enjoy various key features that can go a loooong way.
Let’s break them down in detail…
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1. Cash Value Accumulation
Who doesn’t want some extra cash for the future? Unique to whole-life policies, you send a portion of every monthly premium you pay into a savings account. This is called the cash value and will accumulate over time at a guaranteed rate. The best part, you can get access to it at any time, so if you need a withdrawal or loan, you’re in luck.
2. Guaranteed Death Benefit
As previously mentioned, when you pass away, your beneficiaries get what’s called the death benefit. It’s usually free of income tax and is a great way to offset funeral costs like burials, memorials, cremations, etc. The money can also be used to cover other debts or even function as a long-term income for your loved ones.
3. High Flexibility
Looking for flexibility? Well, you’re in luck. With a whole-life policy, you can change the death benefit. If you want, you can take the cash value to pay off premiums as well. This is especially important if you’re dealing with financial challenges and changes throughout your policy.
4. Estate Planning
Again, the death benefit is quite useful. Not only can it pay estate taxes, taking care of this for your heirs, but it’s also free of taxes, making it a helpful vehicle for creating generational wealth. It all depends on how you use it and what you do with it!
5. Dividends
Depending on the whole life policy and what institution is providing it, you may be able to receive dividends. These are a portion of the profits the insurer sees. You can take any dividends and pay down premiums, get more coverage, or just use it as cash. Check with your insurer to see if dividends are guaranteed in your policy.
6. Loan Borrowing
Remember the concept of cash value?
Well, turns out you can actually borrow against that value. With a whole life policy, you can get low-interest loans without even needing a credit history check. Moreover, you don’t even have to pay it back while you’re alive! However, if it’s not paid off during your lifetime, it will get subtracted from the death benefit your beneficiaries receive, so be sure to plan this one out carefully.
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Is “Whole Life” Right For You?
So what should you do? What’s right for you? What are you looking for?
It all comes down to your specific needs and desires, and what your loved ones will be dealing with after you pass away. A comparison between (1) whole life, (2) term life, and (3) universal life insurance can give you a good idea of what might be right for you.
With whole life, the premiums are usually the highest of the three insurance policies, but they’re also fixed and cover your whole life. You also get cash value for your whole life, which you don’t get with term life. Although universal life offers cash value, the growth rate can vary widely with higher risks. It’s not fixed like with whole life.
Then there are dividends, which are highly atypical for term life and universal life, but relatively common with whole life policies. And finally, you can borrow against your cash value with whole life insurance. This is not the case with term life, but is allowed under universal life policies.
So be mindful.
Do you want predictability and stability? Do you want flexible financial options while still getting a guaranteed rate of cash? Do you want lifelong coverage with dividends and loans? Do you want your loved ones looked after upon your death, with the option to use money in a variety of ways?
If that’s the case, then “whole life” policies might not just be right for you, they might be right for your entire family as well!
