Should I Keep Whole Life Insurance Policy?

Whole life insurance is a type of permanent life insurance that offers lifelong coverage for those who need it. It’s a good investment in some cases, though it’s costly and takes a long time to build up a cash value that’s worth it.

If you are relatively young, in good health, and looking for a tax-free long-term investment to further diversify your portfolio, whole life insurance could be a great option for you.

Investing in Whole Life Vs. Term Life

Whole life insurance not only gives policyholders coverage but also offers them an opportunity to invest. Even though there is opportunity there, the key benefit is the death benefit, paid out to beneficiaries upon death. Term life insurance on the other hand does not collect a cash value over time, only offering a death benefit during the term in which it’s held.

If you do need permanent life insurance, there are different temporary policy types that you can choose from, all of which benefit policyholders differently in the long run:

Term Life Insurance (5-35 years)

Term life insurance is a cost-effective way to get the life insurance coverage you need without having to pay the high costs. It offers coverage and nothing more, leaving policyholders to seek out their own investments to secure their life’s assets.

Guaranteed Universal Life Insurance (Lifetime)

For a policy that lasts a lifetime and offers policyholders the comfort of passing on their assets to loved ones, there is guaranteed universal life insurance. Though it offers coverage for a lifetime, there is no investment component with it, leaving policyholders to seek out their own investment portfolios.

Final Expense Life Insurance

If all you’re looking for is coverage to help your family with your final expenses, then final expense life insurance is the perfect match. There is no investment component and coverage is less than $50,000.

The Cost: Is It Worth It?

One of the key questions to ask before choosing whole life insurance is whether it’s worth it. The cost of the whole life policy is typically high than other life insurance, with premiums due once a month or annually. While the premium payment is split between whole life insurance coverage and the cash value, the cash value builds up slowly over time for the business, making it a great long-term investment.

Deciding if the cost is worth it to you and your financial needs require taking a look at your current assets, along with your investments to deal with life’s unforeseen events. It’s a good idea to compare policies, look at different investments, and consider capital gains taxes, which can go up to 20%.

Whole Life Insurance as an Investment

Whole life insurance works as an investment tool aswell, though it’s made for long-term investing. Policyholders will have to pay a premium each month, which will eventually add up to an amount that policyholders can access via a withdrawal or a loan.

The way that most whole life insurance providers will calculate your cash value is based on your guarantee, which is set to earn you the same amount in cash value and death benefit at the age of 100. Over time, this is earned by the paid premiums and is accessible at any time.

During the first 10 years of the policy, the cash value will typically be very low, not worth withdrawing unless there is an emergency. Over time, it can become substantial, offering access to a sum of cash that policyholders can use in any way they would like.

Some policies not only add cash value with each premium paid but, also payout dividends once their profits are calculated. This gives policyholders even more of an advantage and opportunity to secure investments over time.

Accessing Investment Gains

When policyholders want access to their cash value, they can access it in a number of ways. They are encouraged to choose carefully, with each of their options coming with benefits and drawbacks.

Policy Loan

Policyholders can choose to take out a loan and borrow with their cash value as collateral. Policyholders choose this option because it’s tax-free up to a certain amount and offers instant access to cash. However, a policy loan does reduce the death benefit and acquires interest over time as it’s paid.

Cash Withdrawal

Policyholders can also choose to withdraw for their cash value up to a certain amount from the whole life policy. The insurer may tack on withdrawal fees, reducing the overall accessible amount. As long as premiums are paid, policyholders can access their cash without having to pay taxes, only experiencing a reduction of their death benefit to their beneficiaries.

Selling Your Policy

For those that no longer want coverage, they can opt to sell their policy to an individual or a life settlement company. In most cases, policyholders can earn more than their cash value, though less than their death benefit. Choosing this option comes with taxes on gains, which are to be paid by policyholders.

Surrendering Your Policy

Those who want to cancel their policy can choose to surrender their whole life policy, collecting the cash value. Depending on the status of the account at the time of surrender, policyholders could get more or less of a return of their cash value. The longer they’ve paid, the more cash value they will have accrued.

Weighing your Options

Because there are so many policies to choose from, it’s a good idea to weigh your options. Consider the amount of coverage you’ll receive and whether or not you can collect on your investments over time. Whole life insurance is not for everyone, though it can be a great option for some.

With help weighing your options and finding out which policies are best for you, give Sim a call. She can help you through all of the fine print, choosing the best option to secure your financial future for yourself and your loved ones.

FAQs & Helpful Resources Regarding Whole Life Insurance

Other Types of Life Insurance Products You May Want To Check Out

When To Get Covered

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.