Should I Get Whole Life Insurance?

What Is Whole Life Insurance?

Whole life insurance is a type of permanent insurance that provides lifelong coverage along with multiple guarantees. For those looking for upfront policies without a lot of exceptions, whole life insurance can be just the thing.

Along with coverage and death benefit when the policyholder passes, whole life insurance comes with a number of guarantees, a few of which include:

  • A minimum return upon your death
  • A premium that’s locked in place and won’t go up
  • A death benefit guarantee

All of these things might sound great but, there are still a few things to consider before adding it to your life securities.

 

Understanding Whole Life Insurance

Whole life insurance is a type of life insurance that can provide lifelong coverage. It’s commonly misconceived that whole life insurance and permanent policies are the same, however, they are not. Whole life is a type of permanent life insurance, though it’s not the only one.

Some others include Universal and Variable life insurance, both of which are types of permanent insurance that are different from whole life.

Now that that’s cleared up, let’s take a look at a favorite feature of whole life insurance, the cash value.

 

A Look At Cash Value Accumulation

One of the biggest benefits that come along with choosing whole life insurance is the cash value that adds up over time. As part of the premium payments, policyholders pay in to not only keep their coverage but also to grow their value and have secured investment.

Like other types of retirement plans, funds within a cash value account are tax-free and accessible when needed. If policyholders choose to borrow from their policy, they will have to pay taxes only if their withdrawal results in investment gains.

The cash value feature of whole life insurance policies is one of the reasons why they are different from others on the market and why Canadians from all walks of life choose them. Business owners have a huge advantage when borrowing from their cash value, able to use that toward growing their business without having to pay a huge tax.

Unlike other policies, whole life insurance comes with a guaranteed return rate, something that could take a lot longer to achieve with other policies. This guarantee depends on the rate, with the higher percentage, the more return is expected.

 

Using Cash Value Effectively

We’ve already mentioned that accessing cash value is an advantage, though we didn’t go into too much detail. We did mention that it was tax-free and that you could take a loan out on your accrued cash value amount.

One thing we didn’t cover yet is how that money plays out in terms of your life insurance policy. All outstanding loans and withdrawals that are taken out of the account reduce the amount of the death benefit that’s paid out.

That’s not always a bad thing and, in most cases, it’s actually beneficial to borrow money from the cash value. If you’re not using it, it’s just sitting there, and money left sitting isn’t growing, giving you an incentive to invest a tax-free loan in your business or another possibly profitable venture.

 

Beneficiaries: Who to Pick and How

One of the required parts of acquiring a policy is choosing beneficiaries. Policyholders typically choose someone in their immediate family, though it’s not required. Options are open and anyone can be deemed beneficiary. Policyholders can choose multiple beneficiaries and designate a percentage to each of their choosing.

Beneficiaries not only receive funds but also ensure that things go as planned upon the event of death, requiring someone who is responsible and will take care of all of the final wishes of the policyholder.

 

What Happens When you Die?

Whole life insurance covers the policyholder until death, which is part of its appeal. Additionally, it not only pays out the death benefit but also the accumulated cash value. After all, loans are paid back to the insurance company, beneficiaries receive the rest of the cash value, able to use that toward expenses or to secure assets.

 

The Cost of Whole Life Insurance (And the Factors that Affect Them)

With all of the appeal comes one thing that is not so advantageous, and that’s the fact that whole life insurance is expensive. Compared to other policies on the market, policyholders will wind up paying higher premiums and more per year when they choose whole life insurance. When calculating the cost, insurance companies take several factors into account, including:

  • Age and gender
  • Height and weight
  • Family health history
  • Driving records
  • Substance use
  • Credit
  • + many more

It can be difficult to determine your cost without a proper estimate, which is why you should work with a professional before choosing a policy.

 

Surrendering Whole Life Insurance

Whole life insurance will cover policyholders for the duration of their life, though they can choose to surrender if necessary. To surrender, the policyholder can take their cash value and pay the surrender charge, after which the policy will terminate. Though there will not be a need to continue to pay, policyholders should be aware of the tax placed on the amount received, preparing for that before they surrender.

Other options to manage whole life insurance policies include:

  • Reducing the death benefit
  • Extending the life insurance term
  • Exchange your policy for a different one or for an annuity

 

Is Whole Life Insurance for You?

Understanding all of the options and features of a life insurance policy can be difficult, which is why it helps to have someone with policy knowledge. Sim knows her policies like the back of her hand, with special knowledge for business owners and self-employed professionals.

Her unique skill set along with her knowledge of whole life insurance policies and all of their benefits makes her the perfect partner to lead you to secure your assets and make smart money moves with your life insurance policy. If you think whole life insurance is for you or would like to find out, give Sim a call.

 

FAQs & Helpful Resources Regarding Whole Life Insurance