Whole life insurance is just what its name suggests: it lasts “for the lifetime” of the policyholder, unlike term life policies that expire after 10, 20, or 30 years (depending on the policy). While term life policies are often better for short-term financial planning (child care, student loan repayment, or mortgage payment), permanent life insurance is designed for longer-term financial plans, such as estate planning, final expenses, and charitable donations after the policyholder’s death.
level bonuses: the advantage of a lifetime
Premiums for a whole life insurance policy stay the same for the life of the policy: policyholders pay the same amount each month, with no increases. Level premiums offer the advantages of predictability (the policyholder always knows how much is owed each month) and greater affordability (as the policyholder reaches the last years of life, the monthly premium becomes a relatively minor expense).
With a term life policy, premiums are calculated based on the term (10, 20 or 30 years) that the policy will be in force. Whole life insurance policies calculate the cost of the monthly premium by averaging the cost over a much longer period of time, until the policyholder reaches age 95 or 100. This has the effect that the policyholder pays higher premiums in the early years of the whole life insurance policy. while lowering premiums in later years: Whole life insurance is designed to provide the policyholder with initial protection in the event of death, but long-term growth in the cash value of the plan.
Some whole life insurance policies offer the option of “limited payment” plans, where the policyholder can pay the full amount of the premium over a shorter period of time. The premiums remain the same each month, but the policyholder has the option of paying for the insurance faster, rather than having a monthly payment for each year of his life.
the lifetime death benefit
Like a term life policy, whole life insurance pays a benefit in the event of the death of the policyholder. the difference with whole life insurance is that the benefit is paid at any time throughout the life of the policy holder; Whether the policyholder lives to age 65 or 105, the whole life insurance policy will pay a benefit as long as policy premiums have been paid and the policy is in force.
This is different from term life insurance, which only pays a death benefit for a specified period of time; For example, if a policyholder purchases a 20-year term life insurance policy starting at age 30, the policyholder’s family will only receive a death benefit. benefit if the policyholder dies before the age of 50. Whole life insurance is not limited to a certain period of time; provides the policyholder’s family with continued protection for as long as the policyholder lives.
build cash value
One of the main benefits of a whole life insurance policy is its cash value component. In addition to the death benefit, whole life insurance policies also allow policyholders to build a store of cash value with each premium payment they make during their lifetime. this is a type of “forced savings” that helps policyholders stay insured while also building a financial asset, and the cash value of a whole life insurance policy can grow tax-deferred, similar to a 401 plan (k).
People who have trouble saving for retirement can enhance their retirement security with a permanent life insurance policy – every time policyholders make a life insurance payment on a life insurance policy permanent, they are also saving some money for themselves. Whole life insurance policies also allow policyholders to borrow against the policies’ cash value, which serves as a “rainy day” fund to help provide money when needed for emergencies or unexpected expenses.
whole life as an investment vehicle
Whole life insurance can serve as a good investment vehicle, especially for policyholders who do not have access to a 401(k) through their employers or who are self-employed. The cash value of a whole life insurance policy grows tax-deferred and the policyholder benefits from the investments made by the insurance company, which then pays dividends to the insurance policies owned by the policyholders. .
Although dividends are not guaranteed and the stock market may go up or down in any given year, over the life of the policyholder, permanent life insurance offers the potential to provide investment returns in a What does term life insurance do? no.
With term life insurance, if policyholders are still alive at the end of their 30-year term, they essentially have nothing to show for the money they’ve spent on premiums over the last 30 years. With whole life insurance, policyholders receive financial protection for their families (should they die) while also building an investment for the future (should they live longer than expected).
loan against cash value
In addition to serving as a retirement investment vehicle, a whole life insurance policy can also serve as an “emergency account.” The cash value of a whole life insurance policy does not remain locked up over the years; this is an available asset that can be tapped to borrow for emergency funds.
This gives policyholders a store of value they can access should they need some flexibility in managing their finances; for example, if they don’t want to take out a loan or build up a high-interest credit card balance, or if they want to avoid using a savings account.
Whole life insurance offers a variety of unique features that allow you to meet a different set of goals than would be possible with term life insurance. People who want the security of a death benefit while also having a cash value investment component should consider purchasing whole life insurance.