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- Whole life insurance is permanent and comes with a cash value component, two features you won’t find in term life insurance.
- Cash value acts like a savings account that has the opportunity to grow, but will never fall below a certain level unless the insured person withdraws money.
- Experts generally recommend term life insurance for most people, in part because it’s significantly cheaper.
- Whole life insurance is much more expensive than term life insurance, but experts say it may be right for anyone who wants long-term protection, including business owners; a guaranteed savings account; or equity liquidity.
- policygenius can help you compare life insurance policies to find the right coverage for you, at the right price »
- those without dependents
- those who would have difficulty covering the cost of the monthly premium
- those who hope that their dependents will eventually fully support themselves and will not have to leave them money
- those who choose it as a default option rather than as part of a full financial planning strategy
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As the name suggests, whole life insurance protects you for as long as you live. there is no expiration date, like term life insurance, but it will cost you.
Reading: Who needs whole life insurance
Whole life insurance premiums can be up to 15 times more expensive than term life insurance for the same amount of coverage, according to experts at policygenius, an insurance comparison site.
If you have the cash flow to pay for the cost of whole life insurance and want long-term protection, a secured savings account, or money to leave to your estate and heirs, it may be worth considering.
who should have whole life insurance?
Whole life insurance policies consist of a death benefit and a cash value component. term life policies are often cheaper, but they don’t have a cash value and could expire before the insured dies, leaving nothing to pass on to heirs.
“Term life insurance is a great financial tool to make sure a family or business is covered in the event of an untimely death,” John McLean, certified financial planner and regional director at Penn Mutual, told Business Insider. “There is a place for this type of coverage in virtually every insurance portfolio because of its affordability in the early years.”
But for more “permanence and stability,” whole life insurance adds “a host of life benefits that term life insurance can’t match,” McLean said.
With a whole life policy, part of each monthly or annual premium goes to the insurance company and part goes to the cash value, which earns a small but guaranteed amount of interest, explains policygenius. The cash value acts as a forced savings account that the policyholder can tap into to pay for retirement, take out a loan, or even pay the policy premium without affecting the death benefit.
“whole life insurance offers advantages to anyone whose financial needs extend beyond short-term consideration, including business owners, participants in a defined benefit pension plan, anyone who needs wealth liquidity to pay inheritance taxes or transfer expenses, pre- or post-retirees concerned about the security and sustainability of their retirement income, or anyone concerned about their financial legacy affecting their family or charities,” he said. to business insider kurt jonson, certified financial planner and managing partner and chief executive officer of pacific capital resource group.
who shouldn’t have whole life insurance?
People in the following situations probably don’t need whole life insurance:
Whole life insurance is expensive and isn’t for everyone. If you’re not sure if it’s the right option for you, you can consult a financial planner.
cash value is a bonus, not a deciding factor
The cash component of a whole life policy can be valuable, especially since any money contributed by the insured can be withdrawn tax-free, but policygenius points out that the interest rate is often much lower than what you could earn if The money was invested in another investment account, such as an IRA. In other words, it’s safe, but it’s usually not the best option to grow your money.
In addition, withdrawing money from the cash value of a whole life insurance policy can result in penalties and administrative fees. And unfortunately, that part of the money can only be used while the insured lives; it cannot be left for the beneficiaries.
“Whole life insurance is good for those looking for more than just death benefits with their coverage,” McLean said. “Whole life insurance provides a death benefit you can count on, a level premium with flexibility, cash value accumulation that can be easily accessed in the event of planned or unforeseen financial need, all with potential tax advantages that should be reviewed with a tax professional.”