A whole life insurance policy is not for everyone.
But it is a solution for many people.
Let’s dig deeper into what a whole life insurance policy is, who it really is for, and what companies it is best to buy.
But, understand your own situation and the needs of the product before proceeding, as a whole life insurance policy tends to be criticized (and sometimes for the right reasons).
Just remember, it may be for you … and it may not.
It is a much deeper discussion than how much it costs.
Whole life insurance is an investment in the safety of you and your loved ones in the event of your eventual death.
It offers several other benefits in addition to the lifetime protection of your family, no matter how old you are.
You can choose to buy life insurance to cover business debts or a mortgage in case your family loses the financial security of your income, whether you are the head of the household or not.
But, generally, these are not reasons for a whole life insurance policy.
WHAT EXACTLY IS A WHOLE LIFE INSURANCE POLICY?
A complete life insurance policy for the elderly and a complete life insurance policy for children is a type of permanent life insurance that covers the individual throughout his life.
Also known as cash value life insurance, it includes both a death benefit paid to your beneficiaries and a portion of the cash value that helps you grow.
You may know of other types, such as universal life insurance or term life insurance.
Whole life insurance is a fairly basic type.
You will have a fixed premium that will remain stable during the term of your policy.
Like any other life insurance policy, you should choose an insurer that is financially sound to ensure that your family is cared for when the time comes.
In this way, buying a life insurance policy is a matter of trust.
ENTIRE LIFE INSURANCE AGAINST TERM LIFE INSURANCE
To determine which one is right for you, let’s start with the differences between these two common types.
First, there is the life of the life insurance policy.
Whole life insurance lasts until the insured dies.
Term life insurance has a fixed period of coverage that can last from 10 to 30 years.
It is temporary, although it can last a relatively long time.
Both are simple and direct types of life insurance. Both provide a death benefit to the beneficiaries of the insured.
While term life insurance is less expensive, whole life insurance costs considerably more due to the added value it provides to the insured.
In addition to the death benefit, whole life insurance has a cash value that increases over the life of the policy.
THE ADVANTAGES OF A WHOLE LIFE INSURANCE POLICY
The main benefits of the whole life insurance policy revolve around your accumulation of money.
Part of your premium will go towards the cost of insurance and your death benefit.
The balance is part of its cash value. The money you pay contributes to this fund, in addition to an interest rate set by the operator of your choice.
In many ways, it’s like having an IRA or 401 (k) account.
Like these investments, their cash value earns interest over time, which is tax-free.
And the best part is that you can also withdraw from these funds tax-free, as long as the amount is below the total amount of premiums deposited.
You can also choose to get a tax-free loan against the accumulated cash value.
The problem with any of the ways to access your funds is that you can reduce the death benefit your beneficiaries ultimately receive or incur taxes if you give up.
The death benefit offers your family another important advantage.
In general, your beneficiaries will not have to pay interest on the amount they receive.
It’s one less thing your family shouldn’t worry about during a difficult time. Chances are they don’t pay taxes on this benefit either.
It is one of the most comforting benefits of the full life insurance policy.
Your loan will still accrue interest, which will affect both your cash value and death benefit balances. Also, you don’t have to return it either.
It will also go against the value of the death benefit. You can also use the cash value to pay your premiums if you choose.
These are aspects to consider as part of the total costs and benefits of a complete life insurance policy.
If there is enough cash in a policy where the interest earned annually is above its cost of insurance, the policy can also be considered “paid”.
This means that you can stop paying, and the life insurance policy will be on autopilot until you die, where it will deliver the final death benefit.
UNDERSTAND THE CASH VALUE OF YOUR LIFE INSURANCE POLICY
It is essential to understand the basics of how the cash value of whole life insurance works.
- First, it is a safe way to save money because it is isolated from the effects of market fluctuations.
- Second, the cash value accrues interest tax-free, without limit. And third, you can also earn dividends, as long as the insurer is a company that pays dividends.
However, the cash value is a vital benefit of your full life insurance, similar to an indexed universal life insurance policy.
Its advantages lie in its ability to withdraw or take a loan against you while you are alive, tax-free.
However, it does not go to your beneficiaries after approval. The insurance company will pay the death benefit to the survivors, in addition to the paid additions it accumulates.
HOW MUCH LIFE INSURANCE DO YOU NEED?
There are several things to consider when deciding on the amount of total life insurance coverage to obtain.
Part of this figure involves your intentions for full life insurance.
Many people do not purchase full life insurance for the safety of a replacement income source; That’s what the term is for.
A person can also purchase a term life insurance policy to ensure that the family’s debts are managed.
These may include the short-term expenses of medical and burial expenses. It can also cover long-term needs, such as a mortgage or business debt.
You may have plans for a future dispersal to finance the education expenses of your children or grandchildren.
The whole life insurance policy is for final expenses, final medical bills, and not much more! It’s okay to have a small whole life insurance policy and the rest of your coverage as a term.
CALCULATION OF YOUR COVERAGE
Along with the possible income replacement, consider the other expenses you want to cover to determine the amount of coverage you need.
Think of things like your spouse’s earning potential. Also, think about how long it would take to support your spouse.
You probably want to ensure a comfortable life for your partner.
You’ll want to balance the amount of coverage you want to have with the cost of full life insurance.
However, be realistic about how much you will need.
You can think of complete life insurance as part of the complete package to plan for your family’s future.
For example, suppose you really need about $ 300,000 in coverage to replace a spouse’s income and pay off debts and other obligations. Don’t buy a $ 300,000 whole life insurance policy!
The proper way to do this is likely to be a term policy of, say, $ 250,000, with the rest in a permanent death benefit. This will not only save you a ton of money now, but it will also save you money in the future as you will be able to set your current age on the permanent insurance policy.
TALK TO AN EXPERT FIRST
We suggest talking to us, or another insurance or financial professional, about a complete life insurance policy before purchasing one.
It is a very valuable product to have in your total arsenal, but an inadequate life insurance policy could result in a great loss of money.
When it comes to a full life insurance policy, less is more.
Other life insurance policies, like universal policies, are more budget-friendly if you need a higher long-term death benefit.