What Is Whole Life Insurance Used For?

Whole life insurance is used for:

  • Replacing lost income
  • Covering end-of-life expenses
  • Ensuring care of dependents left behind
  • Leaving a legacy
  • Tax-deferred savings
  • Cash-value benefits
  • Potential dividends

In this article, we look at how whole life insurance policies work as well as what they can be used for in life and after death.

 

How Whole Life Insurance Policies Work

A whole life insurance policy functions as permanent life insurance, meaning that as long as you keep the account current there will be a death benefit paid out when you die. These can be much more expensive than more basic forms of life insurance, but the uses and benefits are much more extensive.

Whole life insurance policies are distinguished from term life insurance policies because they have a cash value that can be borrowed against or used for collateral. They also gain interest on a tax-deferred basis, and some of these policies pay out dividends to customers.

 

Whole Life Insurance Policy Uses for Family

The most immediate reason that a person purchases life insurance is so that their family can be cared for after they die. Whole life insurance plans are a great tool for this because they do not expire, so you never need to worry about finding a new policy.

Families can use whole life insurance policy death benefits to replace the income their family loses, cover any estate taxes or end-of-life expenses, ensure the care of dependents, and provide one last legacy.

 

Replacing Income or Domestic Care

Families can rarely afford to lose a caregiver, regardless of whether they contribute financially, through care tasks, and especially both.

A whole life insurance policy can lessen the blow of this loss by covering the income as long as the death benefit is calculated carefully to match this value. This gives families that rely on that source of income an opportunity to operate as normal and time to adapt.

What people often fail to consider is how valuable care tasks are and how difficult it can be to fill in those areas. Whole life insurance allows families to use the policy to pay for housekeeping, child care, and other important routine tasks.

 

Covering Estate Taxes and End-of-Life Expenses

The death benefit that is paid out to family can go to covering fees such as:

  • Estate taxes
  • End of life medical expenses
  • Funeral costs
  • Leftover debt

By covering these the value of the estate is left intact, and inheritors have much less to worry about in terms of financing a funeral or covering debt.

If you have a business partner then you can use a whole life insurance policy to assist in transferring your part of the business to them in the event of death. This not only leaves behind instructions for how business should be handled after you are gone, but it gives them the means to complete the transfer.

 

Ensuring Dependent Care

If there is a chance that losing you will leave your dependents with little to no care, then whole life insurance can give you peace of mind for the future.

Whole life insurance policies do well to:

  • Cover child care costs for children who no longer have a caregiver available
  • Cover care costs for adult dependent children
  • Secure living costs for anyone else dependent on the policyholder’s care

Whether you are taking care of an infant, an adult-dependent child, or another adult family member, a whole life insurance policy can be used to pay for their care in the future if something happens to you.

This combats any fear that you have regarding who will take care of them and how your family will afford it.

 

Providing Legacy

Whole life insurance policies can be an easy way to leave behind a legacy, regardless of who the policy is paid out to.

Many individuals list their children or other family members as beneficiaries of the plan, and in some cases, an insurance policy is the only inheritance the family will get.

Even if you do not have any children or individuals that you want to leave the funds to, you can donate your whole life insurance policy death benefit to an organization of your choice.

This is a great way to accumulate funds over time to impact the future of the world even after you are gone.

 

Whole Life Insurance Policy Other Uses

Whole life insurance policies are much more than the death benefit, and one of the most distinguishing features of these plans is how the funds are managed.

Companies invest part of the premium and the part that is invested gains interest. After a certain period, the policy also unlocks a cash value, and you can even receive dividends from certain policies.

Each of these benefits has its unique uses.

 

Tax Advantages

Whole life insurance policies gain interest on a tax-deferred basis, and the death benefit is usually tax-free when paid out. These are two major benefits that can help you use your policy to invest in the future.

You do not always have the opportunity to invest without paying taxes on it, but when you know how to use your whole life policy it can be a walk in the park.

The tax-free death benefit can also provide peace of mind for how much your family will be able to use in the future.

 

Cash Value

The cash value of a whole life insurance policy is unlocked after a certain period or after a certain threshold is met. This cash value can be used for a lot, including:

  • College tuition
  • Emergency expenses
  • Business investments

The cash value of your policy allows you to use it while you are still alive to fund needs and projects, but you need to be careful how much you withdraw. Taking too much can lead to a lower death benefit if you do not pay it all back, and you can potentially negate any tax advantages you had.

 

Potential Dividends

While not all companies pay out dividends to policyholders annually, many do. These are small shares of the company that you can choose what you will do with.

You can request that the company payout the cash value of these dividends to you, and the dividends can be used for:

  • Reinvesting into the policy so you can gain more interest
  • Buying more coverage
  • Paying off part of the premium

These plans are usually known as “participating” plans because you participate in the extra earnings of the insurance company.

 

Finding a Whole Life Insurance Policy You Can Use

There are plenty of ways that you can use whole life insurance, and meeting with a knowledgeable advisor is the best way to discover what that list looks like for you. Contact Sim Gakhar for help learning what a whole life insurance policy can do for your life.

 

FAQs & Helpful Resources Regarding Whole Life Insurance