What is Whole Life Insurance?
Whole life insurance
Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. Because of the lifetime coverage period, whole life usually has higher premiums than term life. Policy premiums are typically fixed, and, unlike term, whole life has a cash value, which functions as a savings component and may accumulate tax-deferred over time.
Needs it helps meet: In addition to providing lifetime coverage, whole life is commonly used to accumulate tax-deferred savings. Whole life can also be used as an estate planning tool to help preserve the wealth you plan to transfer to your beneficiaries.
More on Whole Life Insurance
Whole life insurance, like term insurance, will pay your beneficiaries a specific amount of money upon your death. The primary difference between term and whole life is that term insurance provides coverage for a set period (10 or 20 years, for instance), while whole life insurance pays its benefit as long as premiums have been paid.
Once whole life coverage has been issued, it cannot be revoked, reduced or cancelled except in cases of non-payment or fraud. This makes whole life insurance appealing because it provides a degree of certainty. The primary advantages of whole life insurance are:
Protection for life – It doesn't expire or go down in value.
- Level Premiums – The rate you pay for your policy will never increase.
- Cash Value – A portion of your premium builds cash value which can be borrowed against.
- Guaranteed Death Benefit – The amount your loved ones receive is guaranteed.
- Once whole life coverage has been issued, it cannot be revoked, reduced or cancelled except in cases of non-payment or fraud.
The decision to purchase whole life insurance rather than term is a personal choice and depends on your finances, age, and coverage goals. The first part of the decision-making process when it comes to choosing between whole life and term is cost. Whole life policies cost significantly more than term policies for the same amount of coverage. Although that cost is guaranteed to remain level, your main concern should be with having adequate coverage when you need it.
The process of deciding whether or not to purchase a whole life policy begins with determining your life insurance needs. The American Institute of Certified Public Accountants 360 Degrees of Financial Literacy website offers a Life Insurance Calculator to help you determine how much coverage you should have.
Whole life policies cost significantly more than term policies for the same amount of coverage
Cash value, unlike the death benefit, is one you can use while you're are alive to borrow against or use to reduce (even eliminate) premiums down the road. The cash value of a whole life policy accumulates at a tax advantage basis, which means the money you withdraw is not taxed until the amount you withdraw exceeds your basis (the amount you have already paid in).
Another tax advantage of this type of policy is the payment of dividends by many insurers. Dividends are generally taxed as gains; in the case of life insurance, however, the IRS treats dividends as a return of premium and they are not taxable.
The cash value of your policy is special in other ways; it can be borrowed against or from the insurer, or used as collateral for a third party loan. Cash value is also shielded from creditors by virtue of the fact that the insurance is ultimately intended to benefit someone other than you – and that protection extends to the cash accumulated in the policy.
The advantage of permanent insurance is that your health at the time the policy is issued will dictate the terms of your insurance for the rest of your life. This factor is particularly relevant once we reach middle age. Knowledge of your family's medical history is also valuable because it can influence your decision to purchase a policy before any hereditary conditions or ailments begin to affect you.
Call us now, toll-free at 1-877-627-0138 and we will help you figure out the best coverage for you and then provide the lowest life insurance quotes possible.