Some people may prefer whole life insurance. But like most financial products, it’s not for everybody. Whole life insurance is a type of life insurance that covers you for an entire lifetime. It has a savings feature referred to as “cash value” that slowly grows tax-deferred. You have the option to surrender the policy for cash or borrow against the cash value. Because your policy is growing in cash value, whole life policies will almost always be more expensive than term policies, so your agent can help you determine if it is the right fit for you.
Here are five things you need to know about whole life:
Life insurance is essential even if nobody depends on you financially.
Whole life insurance works like an estate planning tool especially when you have a property big enough to be taxed after death. Your heirs may use your policy to pay taxes or other expenses. You can set your beneficiary as a loved one, donate it to a local charity, or consult with your agent or an estate planner to set up your will and your estate accounts.
You have guaranteed returns on the cash value as long as you regularly pay annual premiums.
Getting a whole life policy is a long-term commitment because the cash value doesn’t immediately accumulate. You may need to hang on to the policy for about two decades before you start to see significant growth. If you decide to withdraw the policy in the early years, you may be charged a surrender fee and have little to no cash value to show for the premiums you paid. Also, keep in mind that whole life policies are designed to last you until age 100. You typically pay more than a term policy in your younger (working) years so that you can pay less in your senior years. Always consult your agent before making any changes to your policy that you may later regret.
You can earn dividends at the end of the year.
Not all insurance companies pay dividends. If they do, the amounts are usually not guaranteed. The dividend will be based on your cash value – the more you have, the higher your dividends will be.
You can buy whole life insurance on your children and then transfer the policy to them when they become adults.
Buying a whole life policy on your kids is a great way to save money for them. Most life insurance companies will offer a policy on children as young as 14 days old, and the younger they are, the lower the premiums will be, and the faster your cash value will accumulate. Rather than opening a simple savings account or putting change in a piggy bank for them, this can be a very effective tool for saving money for them for college or their first home, and it guarantees them insurability in the unfortunate event that they develop health concerns later on.
You may loan money or partially withdraw funds from cash value during retirement to supplement income from other sources.
A permanent life insurance policy may be a good idea to plan for retirement, and could be an essential part of your retirement portfolio. When you get into your retirement years, you can borrow money from your cash value, or if you feel that you have enough money in savings that you no longer need the life insurance, you can surrender the policy and walk away with your cash value portion, tax-deferred. Keep in mind that if you fail to repay your loans against the cash value, your death benefit may be reduced. Withdrawing too much cash value may cause your policy to lapse as well.
These are just some of the things that you should know about the whole life insurance policy. Make sure that you know and understand how life policies work. Our agents here at Roper Insurance Services are willing to walk you through getting dependable life insurance. You may get free quotes from us and discuss your options with your agents. Call us at (828) 388-1851 or visit us at our office.