Let’s be honest; talking about life insurance is uncomfortable. We’re thinking about our own deaths and trying to determine what the people we’re leaving behind will need and what we can afford to put towards those needs now. It can feel icky and awkward, but it’s something that needs to be discussed. Accidents happen. Things change suddenly. That’s part of life.
The following will take a look at one type of life insurance in particular—whole life insurance policies—breaking down the reasons someone might choose this option. Of course, every person and financial situation is slightly different, and this means that for the most accurate information about your specific situation, you might want to speak to a few different providers and financial advisors to gather a consensus of what seems right for you.
What Is Whole Life Insurance?
Whole life insurance is one type of permanent insurance (60% of individual policy sales are permanent insurance policies). Whole life is probably the most well-known type of permanent insurance (it’s also the oldest). Basically, life insurance involves you paying an agreed-upon premium for a period of time and the insurance company paying your beneficiary a certain amount in the event of your death. This money can then be sued for burial expenses, final expenses, supplementing retirement income, transferring wealth, helping to pay off a mortgage, replacing lost wages or income, covering home expenses, paying for college, or anything else your loved ones need.
Permanent: Coverage for Life
One of the biggest draws of whole life insurance is that it can cover you for your entire life— you will be covered until you die, so you don’t need to think about or make changes to your insurance as you age. Compare this to term insurance, which only covers you for a certain period of time (like, ten, twenty, or thirty years). When the term ends, you’ll have to find a new coverage policy.
As you can imagine, this means that term insurance is a little less expensive since it covers a shorter time span. Furthermore, https://www.policyadvisor.com/ recommends comparing multiple whole life insurance providers if you decide to go this route to ensure your premiums aren’t crazy. Use a comparison tool or take the time to contact each provider and ask for the estimated cost. Compare the coverage details and the price to ensure you’re making the right choice for you and your loved ones.
Predictable: Coverage That Stays the Same as You Age
When looking at the benefits of whole life insurance, you can’t gloss over how stable this type of insurance is. If you seek term insurance, you’re going to have to secure a new policy later on when you’re older and more likely to have health problems. This can change the costs or policies available to you. With whole life insurance, it’s sorted out forever, and things aren’t going to be changing around on you. Your premiums will stay the same, so will your death benefit. With other options, you’ll be subject to changes in the market.
Tax Breaks Benefits
Most forms of permanent insurance are part of a tax break system. The cash value in a whole life policy grows tax-deferred. If, for example, the money was in a non-retirement account, the interest and dividends would be taxed every year. Moreover, typically the death benefit that goes to your loved one is not taxable, so in many cases, whole life insurance protects money from taxation every step of the way.
Maxed Out Other Saving Options
Given these tax breaks, some people consider whole life insurance simply because they’ve maxed out their 401(k) plans, IRA and Roth IRA options, and 529 plans. It’s another place to protect cash value and diversify their portfolio.
Loan Collateral Potential
At a certain point, policyholders are able to borrow against the cash value of their policy. This is a good thing to have in the event of an emergency. Of course, this should only be used as a last resort because the policy death benefit will be reduced by the amount remaining on the loan if you die before paying it back.
The above points should help you see some of the positives associated with whole life insurance policies. While these benefits are attractive, ensure that you read about the potential drawbacks and see if any of those pertain to your situation. Take the time to research all your options and weigh the pros and cons of each to help ensure you’re protecting yourself and the future of your loved ones without sacrificing too much in the present.