The policy death benefit: This policy payout is exactly the same as term life insurance policies. If you pay your policy premiums, the death benefit amount will be paid to your beneficiaries in one lump sum. You will receive the remaining cash value along with the death benefit if you have a more expensive whole-life policy.
The majority of whole life insurance policies you can purchase are "participating" policies. This means that you might earn dividends depending on the company’s financial performance. There are many ways to use dividends, including increasing the cash value and boosting your policy’s cash value.
Your application materials and medical records will be reviewed by the insurer before determining how much coverage you need. After you sign the policy paperwork, and pay your first premium you are covered for life.
The cash value is the amount of interest that this account earns over time. You can take out or borrow money against it. Although it will not grow as fast as standard investments, it is an easier, tax-deferred way to invest. The breakeven point, when cash value exceeds cumulative premiums, can take between 10-20 years. Therefore, if you're older, it might make less sense to purchase a new cash-value policy.
Whole life insurance is more complex than term life. However, it's easier than permanent life insurance. The premiums will remain the same as your life, while the cash value account grows at an accelerated rate. Except for large cash value loans, the death benefit is guaranteed. Although you do not need to repay any loans if you borrow against your insurance policy, your insurer will deduct any outstanding loans from your final death benefit.
Term life insurance can be more affordable for most people. However, people with high net assets and financial responsibilities will find whole life coverage to be a good choice.
The cash value: You can borrow against or withdraw from this account to build interest. It won't grow as fast as a standard investment but it is a steady, tax-deferred option. It can take between 10 to 20 years for cash value to reach breakeven (when it exceeds cumulative premiums paid). Therefore, the longer you live, the less practical it is to purchase a cash value policy.
Term life insurance works in a very simple way. It covers your death for a certain time period (e.g., 10, 20, 30 or more years). Your beneficiaries will not receive any money if the tour ends and you don't live to see it again. You can rest assured that the death benefit as well as your insurance premiums will not change with most policies.
If you are in the early stages of a career with high earning potential, you can buy your entire life at a lower price and lock in a lower rate.
Your age, your health, and the length of time you plan on paying premiums will determine which whole-life insurance rate is best for you.
You will pay more for whole life insurance if your age is greater. This is because your life expectancy declines as you get older. Rates are also affected by when your policy is due to expire. This means that you have spent all of the premiums necessary to pay your cash value and death benefit.
We are available to answer your questions and help you learn as much as you can. Our agents can guide you through the process, answer any questions, and help compare quotes so you can get the best possible price.
Whole life insurance costs more than term and is the most widely used type of permanent lifestyle insurance. The reason is that most policies offer lifetime coverage and payouts regardless how you die. There is also a cash value component to whole life insurance. A portion of your premiums goes into the account. This account grows over time. Once enough cash is built up, you are able to borrow against it or surrender the policy.
For starters, the death benefit from a whole life insurance policy is generally tax-free. But a whole life policy also features a cash value component that's guaranteed to grow in a tax-advantaged way – it will never decline in value. As long as you leave the gain in your policy, you won't owe taxes on it.
The benefits of whole life insurance may sound too good to be true, but there really isn't a catch. The main disadvantage of whole life is that you'll likely pay higher premiums. Also, you're likely to earn less interest on whole life insurance than other types of investments.
Disadvantages of whole life insurance
Typically for whole life plans, the policy is designed to endow at maturity of the contract, which means the cash value equals the death benefit. If the insured lives to the “Maturity Date,” the policy will pay the cash value amount in a lump sum to the owner.
Surrendering an insurance policy will return to you the cash value of the policy, less some fees, and will cancel the policy3. The amount you recoup from the policy is taxable. So yes, you may withdraw money from your whole life insurance policy, or cash it out altogether.
Whole life insurance is generally a bad investment unless you need permanent life insurance coverage. If you want lifelong coverage, whole life insurance might be a worthwhile investment if you've already maxed out your retirement accounts and have a diversified portfolio.
This is insurance you buy for the length of your life. Unlike term insurance, whole life policies don't expire. The policy will stay in effect until you pass or until it is canceled. The initial cost of premiums is higher than it is with term insurance because of the length of the policy.