Whole life insurance is one type of permanent life insurance. This policy remains active during the entire life of the policyholder, through their death.
Many individuals benefit from whole life insurance policies. These policies include stable premiums, accumulated cash value, and extended benefits for beneficiaries. We’ll dive into each aspect of permanent whole life insurance here today.
When people mention permanent life insurance policies, they are referring to policies that do not expire. These policies may also have a cash savings component.
The opposite of permanent life insurance is term life insurance, which has an end-of-contract date when the policy and benefits expire. The only way your whole life insurance benefits may expire is if the premiums go unpaid while the policyholder is living.
The two most common types of permanent life insurance are whole life insurance and universal life insurance. The difference between the two is that whole life insurance grows its savings component at a guaranteed rate, while universal life insurance has different premiums and grows depending on market performance.
Permanent life insurance, such as whole life policies, is also beneficial because parts of the policies are tax-deferred and tax-advantaged.
Permanent life insurance premiums are often higher than term life premiums at the start; however, term life premiums typically increase over time and with age. If you have a whole life insurance policy, premiums will remain the same throughout the policyholder’s life.
Some term life insurance policies are convertible, meaning you can transform them into a permanent life insurance policy. If you already have a term policy, be sure to check with Sim Gakhar to see if this may be an option for you.
Conversely, whole life insurance policies cannot convert into term life insurance policies.
Most whole life insurance premiums offer dividends from investments, but dividend levels are not guaranteed and the policyholder cannot decide which assets their investment purchases.
Whole life insurance funds take advantage of tax deferment; however, if a policy owner sells their policy before their death, there may be taxes associated with the sale.
Many permanent life insurance policies combine the death benefit with a savings component. Whole life insurance is one of these. Every time you pay a whole life insurance premium, a portion of this payment goes into your whole life insurance cash value account. This cash protects the whole life policyholder while they’re alive, as they can withdraw the funds or take out a loan using the cash as collateral.
Each whole life insurance policy grows the cash value at a predetermined rate. There is usually a period after the contract’s start where borrowing from the cash value is forbidden. This is done so that enough cash accumulates in the fund before the policyholder can access it.
On some occasions, policyholders can move dividends from their policy into their cash value account. Generally speaking, the money in the cash value grows tax-deferred. The policyholder does not have to pay taxes on the growth so long as their policy is active and in good standing.
The benefit of the cash value component of whole life insurance is that it helps the policyholder while they’re alive. So long as they pay their premium limits without issue, money can be withdrawn as a policy loan up to the total sum of premiums paid.
On some occasions, such as for medical expenses or college education, the cash value can also be withdrawn outright. This withdrawal is usually not considered taxable income so long as individuals don’t surpass the amount they have paid in premiums.
It’s important to note that if policyholders owe more in their policy loan and unpaid interest combined than the balance of their cash value, their insurance coverage will terminate.
This tax-advantaged savings system can complement RRSPs and other traditional Canadian retirement plans.
Whole life insurance establishes a death benefit for the policyholder’s beneficiaries. These whole life insurance benefits can be used to address various needs, such as eliminating debt, maintaining a standard of living for the loved ones left behind, and attending to funeral and estate settlement costs.
While most death benefits are paid in a lump sum, certain policy benefits may be held in an account and distributed in allotments, as per the policyholder. Any interest accumulated in this fund during distribution is the tax responsibility of the beneficiary. Otherwise, death benefit funds are not counted as part of the beneficiary’s gross income for taxes.
Beneficiaries of the whole life insurance death benefit are not responsible for the policyholder’s estate – they are simply the recipient of the benefit. The beneficiary should notify the insurance company and file a claim once the policyholder dies to receive their lump-sum, non-taxable death benefit.
In a recent study, two out of three Canadians stated that they would have difficulty paying their immediate bills if they suddenly lost their income. Whole life insurance doesn’t just cover beneficiaries – it also protects the policyholder at any age and life stage.
Most individuals struggle to decide between term life insurance and permanent life insurance, such as whole life coverage. Here are the summaries of each.
Term Life Insurance:
Whole Life Insurance:
If you are looking for lifelong protection and cash value, a permanent policy like whole life insurance may be the best option for you. Policyholders take advantage of guaranteed fixed premiums, dividends, and tax-sheltered growth, all with a guaranteed cash value that can be withdrawn or used as collateral.
Life insurance professionals like Sim Gakhar are here to assist you in finding the best policy for your needs. Whether you’re leaning towards term or permanent life insurance, Sim is available to answer all of your questions and provide the information you need to best support you and your family’s future.
When it comes to life insurance there really is no time that is too soon to get covered. And, this is because the younger you are, the cheaper those premiums are going to be. Not only this, but you are probably healthy right now.
If you wait until something bad happens, you will not only without a doubt face higher premiums, but you might not even be able to get covered at all.
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