Whole Life Insurance Policy Choices
What is whole life insurance?
A whole life insurance policy covers you for your entire life, not just during a specific period such as term insurance. Your death benefit and premium in many cases will remain the same. The whole life insurance also sets the cash value, which is a return on a portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw and you can borrow against it.
Are there choices within whole life insurance?
Yes, most common choices include traditional insurance policies, interest-sensitive, and single-premium whole life. A traditional whole life insurance policy gives you a guaranteed minimum rate of return on your part cash value. An interest-sensitive whole life insurance policy gives a variable rate portion of your cash value, similar to a mortgage variable rate.
With interest-sensitive whole life insurance you can have more flexibility with your life insurance policy such as increasing your death benefit without raising your premiums depending on the economy and the rate of return on your cash value portion.
Single-premium is for someone who has a large sum of money and would like to purchase a policy up front. Like other whole life insurance options, single-premium whole life insurance accrues cash value and has the same tax shelter on returns.
What are the benefits of choosing a whole life insurance policy?
Unlike term life insurance, a portion of your premium money goes toward your cash value which in turn could pay off your entire policy only after a few years. Also, your premium will remain constant during the time you are covered unless you choose otherwise. And, unless you make a change to your whole life insurance policy, you have lifelong coverage with no future medical exams. Whole life is also a good choice because of the tax savings.
Should I purchase a whole life policy for an investment?
The rate of return on a whole life insurance policy is very low compared to other investments, even tax savings factored into it. Most investment professionals agree that life insurance should not be used only as a tool and you should consider your investment policy choices on the protection and not the rate of return. But if you need life insurance, tax benefits and cash value is an added bonus when buying protection for your beloved.
Need life insurance but not sure you can afford the premiums of whole life insurance policy? Check out A Low Cost Life Insurance Policy Option.
Filed Under: Insurance
