Whole Life Insurance
Permanent Whole Life Insurance offers lifelong protection, providing a death benefit to your beneficiaries upon your passing. It builds cash value over time that you can access while alive through personal loans, and the premiums remain consistent throughout the policy's duration. Insurers may present various payment schedules, including paying premiums up to age 100, for a set number of years such as 10, 15, or 20 years while retaining coverage after payments cease or through single-payment options.
Why You Should Consider Whole Life
Whole Life Insurance is multi-faceted; it provides protection for families and assets, aids in estate planning, acts as a savings option for emergencies and necessities, can offer supplemental retirement income, and covers final expenses.
Since the cash value of a Whole Life Insurance policy is not subject to taxes, the funds within the policy grow at a faster rate. The death benefit is exempt from estate tax. Life insurance proceeds will remain free from estate tax if the policy ownership is structured correctly. You can withdraw up to the total amount of premiums you contributed to the policy without incurring taxes. Additionally, it acts as a tax-efficient method for transferring wealth.
Pros and Cons of Whole Life Insurance
Pros
Permanency: A Whole Life policy can last a lifetime as long as you keep paying the premiums.
Predictability: With a Whole Life policy, your premiums and death benefit stay consistent.
Tax Breaks: Similar to other types of permanent insurance, the cash value of a Whole Life policy accumulates on a tax-deferred basis. Additionally, the proceeds from life insurance (the death benefit received by the beneficiary) are typically not subject to taxes, allowing those investment gains to potentially avoid taxation entirely.
Potential Loan Collateral: As previously mentioned, policyholders can borrow against the cash value of their policies after a certain point. This can be advantageous during a financial emergency for someone who has exhausted all other borrowing options. Furthermore, unlike other types of loans, they are not obligated to repay the money if they cannot or choose not to. However, the policy’s death benefit will be reduced accordingly if they pass away before repaying it.
Cons
Higher Cost: Whole Life Insurance is more expensive than term life insurance. This is partly because a portion of your premium goes toward the cash value account.
Lack of Investment Control: With a Whole Life policy, the insurance company decides how to invest the cash value component of your policy. If you are an experienced investor and feel comfortable taking on some additional risk, you might prefer to manage that money yourself.
Whole Life Common Insurance Riders
Term Insurance Rider
A Term Rider on a permanent life insurance policy provides extra financial protection for the policyholder's beneficiaries. It can be used to increase the death benefit for a specified period. When adding a Term Rider to a permanent life insurance policy, you’ll choose a term length, usually between 10, 20, or 30 years.
For instance, your base Whole Life policy may include a death benefit of $100,000 that will be paid out regardless of when you pass away. You could add a term life insurance rider that enables an extra $100,000 to be paid out if you die within the first 20 years of the policy.