What Is Whole Life Insurance?

There are three main types of life insurance policies, one of which is whole life insurance. When people first think about life insurance policies, they often underestimate how valuable they can be and how much they can help in unexpected situations. If a person passes away, it can leave surviving family members with financial hardship. Moving from two incomes to one income can mean downgrading lifestyle, struggling to pay debt, struggling to pay for a funeral, and many other negatives. A life insurance plan helps protect people from this financial hardship. To get protection from life insurance, the first step is to research the different types of health insurance plans. Whole life insurance is a common plan, though many people decide to get a term life insurance policy instead. Utilize the tools on this website to find the best rates for whole life insurance, as well as learn more about the other options you have.

What Is Whole Life Insurance?

Whole life insurance offers people coverage for their entire lifetime, protecting the family and loved ones from financial hardships if the insured person passes away. Sometimes referred to as guaranteed whole life insurance, a person must continue to pay premiums until they pass away to receive the benefits of the policy. Insurers keep the premiums constant over the life of the plan, making it easier for people to budget and continue to pay the premiums they need to pay. If an insured person passes away, and the policy has not lapsed, the beneficiaries listed in the policy will receive a payout.

One of the other benefits that whole life insurance brings to the table comes around tax time. Whole life insurance policies are designed to offer tax benefits. They also have a cash component that grows as the policy ages. Whole life insurance plans are generally considered by people who are not only interested in the benefits of a life insurance death benefit payout, but also can see themselves being in positions where they will want to use the cash value as an investment vehicle. Utilizing the cash value in an insurance policy can be an excellent way to diversify your investment portfolio.

How Does Whole Life Insurance Work?

A type of permanent life insurance, whole life insurance is a coverage that you will have for your entire lifetime. This is so long as your premiums continue to be paid. If you continue to pay your premiums and pass away, the beneficiaries that are listed on your policy should file a claim with the insurance company. After this, the circumstances of your death will be reviewed, and the beneficiaries will receive a death benefit payout for the face value of the policy when everything is deemed to be in order. Make sure to talk to your beneficiaries and let them know that they are listed on your policy, as they will need to file a claim with the insurance provider to receive the benefits. If a person does not know that they are listed as the beneficiary on your life insurance policy, it is possible that they will not claim the payout if you pass, and will not receive the benefits you have planned for them. Keeping your family and loved ones informed is important.

When people purchase a whole life insurance policy, they need to be aware of the various elements the plan has. The first of these is called the death benefit. This can also be called the face value of the policy. These terms refer to the payout beneficiaries receive upon your passing. With whole life insurance death benefits, the benefits are tax-free so long as you are below the state estate tax exemption and the federal estate tax exemption levels. Most households fall under this on the federal level, which is approximately $5.5 million. Only 18 states impose inheritance or estate taxes, so research will be needed to see if you are living in one of those states.

Whole life insurance policy death benefits are often available in increments of between 50,000 and $100,000. They can go up to several million dollars in some cases. Other alternatives besides whole life insurance policies are also available, including term life insurance, which is usually less expensive than whole life insurance plans. Regardless of which type of policy you purchase, the death benefit amount impacts the cost directly. By evaluating your family's needs before buying a policy, you will be more likely to get a plan that best suits your needs.

Another element of whole life insurance is the premium. The premium of an insurance policy is how much it costs. Premiums are sometimes paid annually, and biannual and monthly premiums are generally available options that can create more flexibility. Different insurance companies offer different options for premium payment. With whole life insurance policies, premiums are paid for the entire life of the policy. Some people do choose to pay a higher premium for a shortened period of time to make sure that their policy does not lapse at a later point. This can be very useful for people who have high incomes that can cover the costs early and want to make sure that their policy does not lapse later on if their income decreases. Paying more in advance if you can afford it can be a great way to reduce the financial risk profile of your family and loved ones.

The last element of permanent life insurance policies is the cash value. Whole life insurance coverage is a permanent life insurance plan that accrues cash value over the life of the policy. If you surrender the policy to the insurer, the cash surrender value is what the you will get paid. This cash value is not associated with the face value of your policy, which is what your beneficiaries get if you pass away. Whole life insurance policies have a cash value that grows tax-deferred over the life of the plan. Cash value is guaranteed to grow at a particular rate with this type of policy.

The Pros And Cons Of Whole Life Insurance

Due to a whole life insurance policy having the cash value element, many people choose to take advantage of the diversification this type of policy can bring to an investment portfolio. Whole life insurance policies are often considered investment vehicles due to the cash value growing tax-deferred over time. The guaranteed rate of return on the cash value of a whole life insurance policy may be lower than other financial products, meaning it can lower the overall volatility of a portfolio. Also, the cash value can be utilized to pay for premiums, purchase additional coverage, provide a tax-free loan, and in some cases, be withdrawn for other uses. If you have borrowed against the cash value of your life insurance policy and pass away before paying it back, the remaining loan amount will be deducted from the policy's death benefits.

Another positive to consider is dividends. There are dividend-paying whole life insurance policies, which are also called participating whole life insurance plans. These policies are offered by certain insurance companies which pay a dividend when the insurance provider performs better than expected. As a policyholder, you get to benefit from the financial gains of the insurance company.

These policies have fixed premiums, the option to surrender, no additional medical exams, lifelong coverage, and tax-free policy loans. With all of these benefits, people still wonder if they should buy whole life insurance.

Should I Buy Whole Life Insurance?

A person’s financial objectives are a large part of whether or not a whole life insurance plan makes sense for them. If the primary objective of getting life insurance is to have a death benefit in place, which will help cover you family's expenses should you pass, other products might be better suited for your needs.

Whole life insurance plans are best for people who are not only interested in the death benefits but also want to take advantage of the cash value of the policy as an investment vehicle. People who are fine with higher costs and are younger and healthier can benefit by locking in a lower annual premium by purchasing a policy early in life. This gives the policy a much more extended period to accrue into a sizable asset with its cash value.

People who have significant upcoming expenses or outstanding loans, such as a mortgage, sending a child to college, or having anticipated medical expenses, can benefit from a whole life insurance plan. Also, this type of plan is excellent for people who want to have life insurance coverage for their entire life. If you do not want your family to be in a challenging financial situation, or want them to be financially protected if expensive situations occur, whole life insurance can be a huge benefit. Use the tools on this website to find the best prices for whole life insurance, as well as the best policies and companies. Taking this step today can help you protect your loved ones in the future.